The WonderBra Effect

Imagine if just ten houses sold across the country in a month and three of them were in London. Would the average selling price reported by lenders or the Land Registry be distorted by the sales of multi-million pound homes in Prime Central London? We know that the market in London and the South East has taken on a life of it’s own in the past six months or so but are sales in the Capital giving the numbers across the whole of England and Wales ‘the Wonderbra Effect’ i.e. an unnatural lift?

Figures this month from Rightmove on asking prices confirmed that sellers expectations across the whole country were on the rise with just the North of England reporting a fall over the past year. Reports of rising prices seem to have brought out the green-eyed monster in many sellers and greed has taken over. It could of course just as easily be instruction-staved estate agents valuing for instructions but either way, vendors seem pretty confident about the market. As I have been at pains to point out before, the gap between average asking prices and what homes are reported as actually selling for is a yawning £53,000!

We know that the supply of new properties is still just a trickle with the ratio of new instructions coming on every month to homes sold per day down to just 17 at Christmas. You can understand that the meagre supply of properties for sale is not improving since the long term average is actually 46!

The Land Registry report at the end of January stated that house prices in London were rising fast with Richmond-upon-Thames up a whopping 6% over the year but in the same report, they confirmed that prices in Wales fell 2% in December alone and down 2.5% on the year!

So is the buoyant and busy South East actually skewing the numbers? First of all we need look at actually volumes. Over the past six years the number of sales in London (as reported by the Land Registry) has been about 12% of all sales in England and Wales. This number does fluctuate but it was bang on average in October (the most recent month that the Land Reg gives us) with 7,341 completions in the Capital despite a woeful 59,700 across the rest of the Country. London agents were actually busiest accounting for 14% of all sales in January and February 2008. So if turnover in the country falls then it does likewise in London.

So what about values? According to Acadametrics, the brains behind the FT House Price Survey if you take out the London sales then average house price inflation is about 1% lower per annum. Because Acadametrics actually look at ALL sales (rather than just a proportion as the Land Registry does) prices are slightly higher. They have average sale prices in January at £215,016 (not that much lower than Rightmoves average asking price at £229,000) and £193,130 if you ignore London.

So, London and central London in particular may be seeing house price inflation creeping back to pre-boom levels and prices for those that are selling are now back at their peak levels of 2007 it doesn’t appear that this distorts the averages across the country.

Stock of available property is as severe in the Capital as it is elsewhere and a flood of new sales could disturb the delicate balance of supply and demand and send prices lower. On the face of it demand looks pretty robust but the latest mortgage numbers published by the Council of Mortgage Lenders suggests that about 35% of home buyers don’t need a mortgage and as cash buyers who are not dependant on scarce mortgage finance and a pessimistic mortgage valuer checking up they may be less concerned about what they pay for a property, a trend that we must expect to continue.