What goes up must come down, right? Except, it seems, house prices. The gravity-defying performance of the housing market over the past year has left many experts baffled. How can prices keep moving upwards when unemployment has been rising and loans for first-time buyers have all but disappeared? Well, there are some credible economic explanations — the restricted supply of property being the one most widely touted. But perhaps it is also worth examining the credibility of some of the market surveys and indicators that are constantly churned out.
This week the Royal Institution of Chartered Surveyors (RICS) published its latest monthly survey of estate agents. The survey said that 30 per cent more agents saw prices rise than fall in December, suggesting a fairly buoyant property market. But does this give the whole picture?
Perhaps not, because it does not necessarily follow that the majority of estate agents saw prices rise. If the RICS questioned 100 estate agents and 26 saw prices rise and 20 saw prices fall, it follows that 30 per cent more surveyors saw prices rise than fall. But it also means that 74 per cent of agents either saw prices fall or stagnate, slightly less suggestive of a buoyant market. Unfortunately, the RICS refuses to publish how many estate agents it surveys and the exact numbers saying what.
But it is not just the RICS surveys that could be misrepresenting the property market.
Questions also have to be raised over the accuracy of the Nationwide and Halifax house price surveys, not least because the volume of home sales has fallen so much. Neither lender will reveal exactly how many customers their figures are based on, but the Land Registry says that property transactions dipped by as much as 60 per cent on their long-term average last year, suggesting that the sample size of both surveys has reduced significantly. Even as the property market has picked up in recent months, transaction numbers are still down about 30 per cent on the long-run average. As any statistician will tell, you, the lower the sample size, the greater the chance of error.
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Taking a longer-term perspective, the fall in the number of first-time buyers must also be distorting the Halifax and Nationwide surveys. In the 1990s, first-time buyers made up 50.3 per cent of total home purchases, according to the Council of Mortgage Lenders. Over the same period, house prices increased by 22 per cent, according to the Halifax. In the ten years to 2010, the proportion of first-time buyers fell to 36.7 per cent, yet house prices increased by 91 per cent.
As first-time buyers tend to buy cheaper homes, there must have been a greater number of property transactions at the pricier end of the market throughout the 2000s, driving the average purchase price of each transaction and, therefore, each house price index higher.
Of course, nobody can deny that by any measure house prices have risen hugely over the past ten years, but the big drop in the number of first-time buyers must be inflating the Nationwide and Halifax surveys, at least to some extent.
Sadly, it is impossible to judge the full extent of the distortion in 2009 because neither the Halifax nor Nationwide will release figures showing how many transactions their surveys are based on — and crucially, the proportion of borrowers who are first-time buyers.
Taking all the surveys together with the anecdotal evidence from buyers and sellers, there can be no doubt that the property market showed remarkable and unexpected resilience throughout 2009. Nonetheless, doubts will remain about certain housing market surveys and indicators until their publishers come clean. What have they got to hide?
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Beware the savings account trap
My new year resolution for 2010 was to open a savings account. You might imagine this not such a lofty ambition, at least for a personal finance editor, but it has proved harder than expected.
With interest rates likely to be higher in a year’s time, I decided that a one-year fixed-rate bond would be the most suitable home for my spare cash. But virtually all of the one-year accounts in the best-buy tables require postal applications, and thus a degree of organisation. On at least two occasions, the deal I was applying for disappeared before I managed to post my application. In my defence, the top fixed-rate bonds are subscribed so quickly that they are often withdrawn within days of being offered.
In the end I gave up on a fixed rate, opting instead for a variable rate account linked to my current account. The rate of 3 per cent was not as attractive, but it was decent enough and could be set up online easily.
Like many savers, my search for a new account came after the shocking realisation that I was receiving next to no interest on my existing account — an Isa with the Nationwide. I found this out only after going into my local branch and asking. Of course, I expected the rate to be low, but I didn’t expect it to be a pitiful 0.2 per cent.
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I am not the only person to have fallen into this trap. Tens of thousands of savers over the past few months have found themselves equally shocked to discover how little their savings account — often with a trusted building society — is paying. Many millions more still have that surprise to come.
To a large extent, savers have only themselves to blame. People must take responsibility for their money if they want to receive the best rates. However, too many banks and building societies have used sneaky tactics to keep customers in the dark about rate changes.
As ever, the Financial Services Authority clocked the problem only after the damage was done. Since November, the City watchdog has forced savings providers to inform customers of changes to rates at least two months in advance.
Sadly, however, this has proved inadequate as banks often bury the changes in obscure alterations to terms and conditions, or hide them in huge tables that show many accounts with similar names.
The watchdog must revisit this issue to ensure that banks and building societies play by the spirit as well as the letter of the new law.