What Do House Price Surveys Tell Us?
The news is full of house price surveys. But with some saying prices are rising and others declaring the market is cooling, what do these surveys really mean?
In August, a survey was released saying that house prices had leapt by £3,400 in just one month. This news was often reported in connection with the findings of another survey, which suggested that a first home will cost £1million in just 17 years' time.
However, these headlines do not show an entirely accurate picture. In fact, when the findings of other surveys are taken into account, it seems the market is cooling slightly.
There are seven major bodies who release surveys on house prices: the Land Registry; Royal Institute of Chartered Surveyors; Nationwide; Halifax; the Department for Communities and Local Government (DCLG); Hometrack, and Rightmove. Each conducts their survey in different ways, from complicated mathematical equations to asking the opinion of a cross-section of industry experts.
The £3,400 leap in prices was calculated by the DCLG. While accurate in many ways, this survey is heavily influenced by the amount of money spent. Thus London and the South have a huge impact on its findings. The annual average rise in house prices may stand at 12.1% nationally, but buyers in Manchester have only experienced a rise of 9.1%.
Surveys by RICS, Rightmove, Hometrack and Nationwide all suggest that in the last couple of months prices have steadied. A further rise in interest rates to 6% is still expected by some in the autumn. This should cool the market further.
And as for that £1million price tag on a first home? The building society responsible for that figure, Stroud and Swindon, relies on three things in order to make its conclusion. Firstly that mortgages will be offered at seven times the predicted average salary, secondly that the typical worker will be earning £136, 074 per year and finally that house prices continue to rise with the startling velocity seen over the last five years.
With the world's economy reeling from the aftershocks of America's economic crisis, it is unlikely that UK banks and building societies will continue to lend money to sub-prime mortgage candidates, as they would have to were they to lend such large multiples of the annual salary. In addition to that, the average wage currently stands at around £24,000 and surveys are showing a market that appears to be steadying.
There is no need to panic just yet.