I really like the new Nationwide song

Regional house price changes from 2004 to 2012

According to the Nationwide, the nominal average/median price of a home in each region has increased/decreased since 2004 as follows:

London +28%
Scotland +26%
Outer Metropolitan +15%
South East +8%
South West +7%
East Anglia +5%
Yorks & Humberside +1%
N Ireland +/-0%
West Midlands -1%
East Midlands -1%
Wales -4%
North West -4%
North -5%

Scotland is a real outlier, not because houses are expensive there now (it's fourth from the bottom) but because their average price was lowest of all the regions in 2004.

Feel free to knock off RPI or CPI inflation from those figures, which would make them all negative except possibly London and Scotland.

Nationwide nearly joins the dots

In their May 2012 house price report, they include a couple of interesting charts.

i) The chart at the bottom of page 1 shows that since 1952, the Retail Price Index has risen from 100 to about 2,500 but their house price index has risen from 100 to nearly 9,000:
It would be more meaningful to compare house prices with earnings (which themselves rise a couple of per cent a year faster than the RPI) but the general observation stands that as the economy advances, house prices grow super-proportionately, i.e. they increase as a share of the economy, i.e. compared to normal shop prices (which gradually fall relative to wages), houses are three-and-a-half times as expensive as sixty years ago.

For sure, some of this extra increase has to do with the credit bubble and supply restrictions, but only some of it.

ii) The chart at the bottom of page 2 shows housing affordability in the ten English regions:
We observe that there is a more or less straight line between the dots - in the North, rents are 20% of earnings and houses cost three times earnings; and in London, rents are nearly 40% of earnings and houses cost over six times earnings, with all the other regions in a straight line in between. The explanation for this, which appears to elude Nationwide, is exactly the same as in i).

You just have to remember that a) average earnings are very low in the North and very high in London (with the other regions in a straight line in between), which draws people towards regions with higher earnings; b) these earnings differentials cannot be competed away (in the short or medium term); and c) actual day to day living costs are much the same anywhere.

As a result, that surplus which higher earners in higher earning regions have available - after paying for living costs - is not competed away by new arrivals (there is only so much space, and in any event, higher population density would push up average earnings yet further) and is simply soaked up in higher rents and house prices.

So we could assume that the economy is the North is less advanced and in London it is more advanced; so comparing London with the North is like comparing 2012 with 1952. The observation that rents as a share of earnings increases when/where the economy is more advanced holds either on a temporal or spatial basis.

The Reality Gap

From the BBC:

House sellers have dropped their asking prices for the second month in a row, the property website Rightmove says.

Sales have been held back by the reality gap in the market, with asking prices rising for most of this year while selling prices have been flat. However, Rightmove says asking prices dropped by 2.1% this month after a 1.6% fall in July. The average asking price of £231,543 is now 14% higher than the average £203,528 selling price. That selling figure comes from the government's own monthly house price survey, produced by the Department for Communities and Local Government (DCLG).

The gap between asking prices and selling prices is even wider if data from other house price surveys is used. The Halifax puts the cost of the average home at £163,981, and the Nationwide puts it at £168,731, so sellers and their estate agents could be overpricing their properties by as much as 41%.

I must admit to being eternally puzzled by the discrepancy between the average house price of about £165,000 according to Halifax, Nationwide, HM Land Registry and HM Revenue & Customs; and the average price of over £200,000 according to DCLG and Rightmove.

For sure, Halifax and Nationwide don't include cash sales, but:

a) HM Land Registry and HM Revenue & Customs certainly do. That's joined up government for you, I suppose, and

b) Is it really plausible that cash buyers would outbid mortgage buyers by £40,000? I thought the whole point of being a cash buyer was that you can slightly underbid, but your offer is still likely to be accepted because there is less messing about.

History reasserting itself

As I've said before, until the second quarter of 2009 (i.e. quarter 10), the current house price crash had been tracking the previous one very closely, then New Labour hurled everything they had at it, and managed to stall things for a year or so. As much as the Lib-Cons would love to continue propping up house prices, there is clearly not enough money to hurl at the banks to hurl at borrowers* so the pattern seems to be reasserting itself. Click to enlarge:

The blue series shows quarter-on-quarter price changes from Q1 1989 onwards; the red series shows quarter-on-quarter price changes from Q1 2007 onwards.

The post-1989 crash continued for another few years after the end of that chart, but rises and falls were no longer so spectacular - however, the forced increases during 2009 (which would have been decreases had history been allowed to run its course) will have to reverse at some stage in the future, so I would expect house price falls for the next few years to be far more noticeable than in the early 1990s.

Source: Nationwide's UK House prices adjusted for inflation (choose from the drop down box labelled 'UK series').

* The Lib-Cons are sticking with the old favourites, like depressing interest rates, which is merely a random transfer of £30 billion a year from 'savers' to 'borrowers' (with their chums at the banks being able to double their profit margins), and a complete block on any new development.

NOW That's what I called modest!

From Nationwide's monthly house price index for October 2010:

Modest downward trend in house prices continues in October.
• House prices fell by 0.7% in October
• Three month rate of decline accelerates to 1.5%...

PS, according to their inflation adjusted house price series, we are back to the same price levels as in the first quarter of 2004.

History reasserting itself

Until the second quarter of 2009 (i.e. quarter 10), the current house price crash had been tracking the previous one very closely, then New Labour hurled everything they had at it, and managed to stall things for a year or so. As much as the Lib-Cons would love to continue propping up house prices, it appears that there's not enough left in the kitty* so the pattern seems to be reasserting itself.

The blue series shows quarter-on-quarter price changes from Q1 1989 onwards; the red series shows quarter-on-quarter price changes from Q1 2007 onwards. The post-1989 crash continued for another few years after the end of that chart, but rises and falls were no longer so spectacular.

Source: Nationwide's UK House prices adjusted for inflation (choose from the drop down box labelled 'UK series').

* They are resorting to far more bizarre strategies, such as depressing interest rates, which is merely a random transfer of £30 billion a year from 'savers' to 'borrowers' (with their chums at the banks being able to double their profit margins).

History not quite repeating itself

What happened in the last three months??

Until the second quarter of 2009 (Q10), the current house price crash had been tracking the previous one very closely, so this quarter I was expecting prices to fall slightly - but they went up. It appears that the Tories are determined to keep the bubble inflated, but surely they can't have had that much impact?The blue series shows quarter-on-quarter price changes from Q1 1989 onwards; the red series shows quarter-on-quarter price changes from Q1 2007 onwards. The post-1989 crash continued for another few years after the end of that chart, but rises and falls were no longer so spectacular.

Source: Nationwide's UK House prices adjusted for inflation (choose from the drop down box labelled 'UK series').

Normal service resumed

From the BBC: "House prices drop 1.9% in March... according to the Halifax."

The point at which their index goes five-year-negative is tantalisingly close. Halifax monthly all-buyer non-seasonally adjusted figure for April 2004 was £154,433 and for May 2004 was £159,103; as against £157,066 for March 2009 (from table 13 of the Excel sheet here).

As I posted yesterday on the Nationwide figures "We may have to postpone five-year-negative until May 2009. NB, average price now =£151,000 ,average price in May 2004 = £149,000". I think their April 2004 was £147,000.

So both the Nationwide and Halifax indices will both go five-year-negative (non inflation adjusted!) in April or May 2009 at the latest.

The fun part is over; let the long hard slog begin!

Oh dear.

We may have to postpone the month in which Nationwide's house price index (non-inflation adjusted) goes five-year-on-five-year negative until May 2009. The average price now (March 2009) is £151,000, as against an average price in May 2004 of £149,000.

Interestingly, according to the Monthly Indices (post '91), in the sixty months from January 1991 to December 1995 (when prices bottomed out again), there were twenty-eight months in which prices showed an increase (compared to the previous month). April & May showed increases in four out of those five years, but there was never an increase in August or September.

The post '91 index misses out the first proper year-and-a-bit of the post-1989 crash, but to be fair, we've also had the first year-and-a-bit of the glorious post-2007 crash, so now we're in for the long hard slog. Those who have sold-to-rent and who have to keep their respective Her Indoors on a short leash know what I mean!

Dunfermline BS - examples of bad and slightly better financial journalism

Horrors! From yesterday's Times: "The Government has been forced to pay out around £1.6 billion for a portfolio including toxic loans and questionable mortgages as part of the rescue of Dunfermline Building Society by Nationwide Building Society today. The Treasury is made the cash payment to Nationwide, which this morning agreed to take on the healthy parts of the Dunfermline, including its 300,000 strong army of depositors, in a rescue deal hastily put together over the weekend."

Ah ... I see! From today's FT: "Nationwide, Britain’s biggest building society, has acquired £2.4bn of savings accounts from the Scottish group. It has also picked up the mutual’s staff, brand, 34 branches and head office as well as a £1bn portfolio of residential mortgages. The £1.6bn payment from the government to Nationwide is because the building society is only acquiring part of the group’s asset book but all of its liabilities. It includes £68.5m of integration and running costs from the deal."

What most people overlook is that 'savings' are a liability from the bank's point of view - those accounts are money that it has to pay out again sooner or later. So Nationwide does not appear to have pulled a fast one; it acquired £1,000 million mortgage assets (worth perhaps £900 million) and £1,600 cash (= £2,500 million) and assumed liabilities* of £2,400 million (customer deposits) and £70 million of integration and running costs, net value of transfer = negligible.

The amount that the government paid to Nationwide appears to be 'about right' and is thus irrelevant.

The bit that is important is how much the government will recover from Dunfermline BS's asset book; whether that will be less than the £1,600 billion it is out of pocket so far; and who else could have taken the losses on the chin.

I've checked Dunfermline's most recent accounts (for 2007**) and they appear to have non-customer liabilities*** of £465 million. Assuming the government had the nous to keep those liabilities within Dunfermline BS (it's not clear from the FT whether they did this, thus reducing the amount it had to pay Nationwide by £465 million) it could repay itself first and those liabilities last (a kind of forced debt-for-equity swap), then even if a quarter of the asset book is irrecoverable, the cost to the taxpayer would be minimal. Once the government has its money back, it hands over the keys to the other creditors and tells them to salvage what they can.

That's that fixed. Next.

* To confuse the issue, customer deposits at a BS are referred to as 'Shares' in the balance sheet, are they heck, in practice they are more or less the same as customer deposits at a normal bank.

** Either the Dunfermline BS was totally PC or it was targetting the wrong sort of customer; the pretty photo's of typical customers that adorn the first few pages are of a single mother; an Asian couple; and a pensioner couple.

*** "Amounts owed to credit institutions", "Debt Securities in Issue" and "Subordinated Liabilities", per balance sheet, page 19 to the accounts.

What a difference a year makes ...

Crown has a look at The Nationwide's forecasts for 2007:

Leave comments over at his.

Fionnuala: lost in time and space?

The Nationwide's 'Chief Economist' Fionnuala Early has kept us all entertained over the past year with her Time Travel Adventures, whereby each month's house price statistics contained the pat phrase "But house prices are still £x higher than they were y years ago", whereby x was an ever decreasing figure and/or y an ever larger one.

The Nationwide's January figures show that either the time machine has broken down or Fionnuala has simply disappeared into the ether...

Commenting on the figures Martin Gahbauer, Nationwide's Senior Economist, said "The price of a typical house fell by a further 1.3% in January, as the deepening economic recession and financial market turbulence continued to weigh on housing market sentiment and activity. January’s decline leaves the average price of a typical house at £150,501, down 16.6% from 12 months ago. The 3-month on 3-month rate of change, a smoother indicator of the short-term trend in prices, improved for the fourth consecutive month from -4.2% in December to -4.0% in January. However, it is too early to say that this marks the start of a sustained improvement in the short term trend."

Or possibly that it's just too embarassing to admit that the average price - currently given as £150,501 - will be lower than the price of five years earlier (£145,918 in April 2004) by April 2009, assuming that the next three months see prices fall by a further 4%?

Pent-up demand

From The Metro:

This pent-up demand, which will have been exacerbated by the fall in the number of new homes being built since the end of 2007, suggests house prices could recover quickly once activity in the market starts to rise again.

Ms Earley said: "The short-term outlook for the housing market is fairly weak. This should not be surprising given the economic and labour market conditions we expect to face. Sharp cuts in interest rates will provide support to existing and potential homeowners and pave the way for the improvement in affordability which will eventually encourage buyers back into the market."

The joke here is that Ms Earley is Chief Economist at The Nationwide Building Society - yup, the very same building society that announced last week that it "... will not pass on any further cuts in UK interest rates to most of its tracker mortgage customers."

For clarity, The Nationwide appears to be a well run, old-fashioned institution, with sensible lending ratios and which didn't go for this whole "wholesale funding" and "securitisation" malarkey, and which has not, as yet, had to go cap in hand to the government for a bail out, so they are probably doing the right thing by charging (and paying) higher interest rates than other lenders. It's just strange that their 'Chief Economist' doesn't seem to know this.

Fionnuala Earley's Time Travel Adventures (4)

From Nationwide's December house price survey:

"The price of a typical house is now £153,048, around the same level as of [sic] spring 2005, but still over £17,500 more than five years ago."

From the November survey:

"The price of a typical house is now £158,442. This is about £25,000 less than this time last year but is still about £25,000 higher than in November 2003."

From the March survey:

"The price of a typical house in the UK is now £179,110, only £2,027 more than this time last year. However, prices are still 11% higher than two years ago and 47% higher than five years ago - the equivalent of a price rise of more than £30 per day for the last five years [that's £10 a day at using current figures]".

*ahem*

Prices are down 18% from their peak in August 2007, so one year's falls have wiped out the previous two and a half years' gains. By the end of this year, even the 2003 comparative will probably be showing an overall loss.

*/ahem*

UPDATE: Assuming prices fall by a (conservative) one per cent a month for the next four months, the five year comparative will be negative, or at best flat.

Fionnuala Earley's Time Travel Adventures

To celebrate this month's house price falls, Ms E has popped back to 2003:

“The rate of house price falls moderated significantly in November. Prices fell by just 0.4% in the month compared with 1.3% in October. This brings the annual rate of house price falls to 13.9%, down from 14.6% last month. The price of a typical house is now £158,442. This is about £25,000 less than this time last year but is still about £25,000 higher than in November 2003."

Oh noes! We visited 2003 a few months ago, the comparison with today looked a lot rosier then didn't it?

"The price of a typical house in the UK is now £179,110, only £2,027 more than this time last year. However, prices are still 11% higher than two years ago and 47% higher than five years ago - the equivalent of a price rise of more than £30* per day for the last five years."

* That's down to £14 per day, using today's prices.

Er ... Vince?

From today's Metro:

HSBC was accused of 'profiteering' yesterday after a senior executive signalled it may not pass on interest rate cuts in full to its customers. The bank's chief operating officer, David Hodgkinson, said there could be 'stickiness' in rates* even if the Bank of England lowered them as expected later this week...

His remarks were seized upon by Liberal Democrat treasury spokesman Vince Cable. He said: 'It is difficult to see the justification for Mr Hodgkinson's comments. When the whole banking industry owes so much to taxpayers for their very survival, any bank will find itself on very thin ice if it is found to be unfairly profiteering from its customers.'

IIRC, HSBC and Barclays were the only two major banks who politely declined the taxpayers' shilling, along with Nationwide Building Society. Is he perhaps confusing 'HBOS' with 'HSBC'? Tut tut.

* Aka 'pushing a piece of string'.

Fionnuala Earley's time travel machine still functioning smoothly

From the Nationwide's October House Price Survey, which estimates that prices have fallen by 14.6% over the past year (not adjusted for 5% inflation!):

The price of a typical house is now £158,872, almost £30,000 less than a year ago, but to put in context, still almost £30,000 more than five years ago.

So broadly speaking, adjusted for RPI inflation, you have just about broken even over the last five years, and the last year's falls have wiped out the previous four years' gains.

Fionnuala's previous adventures through time and space documented here.

HM Land Registry versus Nationwide House Price Indices (3)

As we established back in May, HMLR's figures for a month (released at the end of the next month) tend to be in line with Nationwide's figures for two months previously (released at the end of that month). This rule still held in July but since then the two had diverged - HMLR's figures showed much smaller falls.

HMLR now seem to have caught up again: their September 2008 figures are month-on-month fall 2.2%, year-on-year fall 8%.

Nationwide's July figures, for comparison, were month-on-month fall 1.7%, year-on-year fall 8.1%.

Fionnuala Earley has stolen the CIA's Time Travel Machine

Ms Earley (a fitting name for a time traveller!) appears to be making liberal use of the CIA's Time Travel Machine:

If you browse the Nationwide's 2008 house price archives, you find this:

September 2008: the average house price is "60% higher in real terms than at the start of the decade".

July 2008: the average house price is "£11,000 higher than three years ago"

May 2008: the average house price is "5% higher than two years ago"

March 2008: the average house price is "11% higher than two years ago and 47% higher than five years ago"

January 2008: the average house price shows "an increase of £7,249 over the last twelve months".

Scary stuff, huh?