The Angry Geek

I have proposed a theory – visible here – that suggests that the “House Price Crash” of 2008 was in fact engineered by careless reporting by an irresponsible media.  It’s probably not a new theory – but I doubt you’ll ever see it in the News of the World.

Despite the cause, the fact remains that published statistics show that house prices have indeed fallen over the last year – a wonderful news story in my UK news feed from the BBC had the headline House Prices Return to 2004 Level – no mention in the video though of where that particular statistic came from.  A quote from the end of this report caught my attention:

A rare sale in the North London housing market, but only after a big price cut.  Estate agents forever optimistic believe the market may be moving again. But nobody is betting that prices won’t fall further this year.

Now, I’ve added italics here to separate the facts of the matter from the journalists interpretation:
Fact: a sale in the North London market, after a price cut.  Interpretation: A rare sale, after a big price cut.
Fact: Estate agents believe the market is moving again.  Interpretation: Estate agents are forever optimistic.
Fact: The journalist thinks that house prices will fall further.  Interpretation: Nobody thinks that house prices won’t fall further.

Another good reference from the much vaunted BBC is this one: UK House Prices by Area.  It’s a bit out of date now – the data is for July to September 2008 – but have a look at the disclaimer: The BBC makes no warranty or representation as to the accuracy, completeness or reliability of the above information and accepts no liability (including for negligence) in respect of any of the above information. In other words, this could all be rubbish, and we [The BBC] don’t care.

Now, let’s look at the statistics.  Apparently, house prices have fallen 16.2% in 2008.  I’ll believe that – after all, the BBC has no reason to lie to us – but let’s see what that really means to consumers.  We all know that celebrities buy massive mansions for many millions, so let’s just assume that a certian percentage of house sales in 2007 were Mansions, selling at £2,000,000 a piece.

The BBC reports that the average house price in 2007 was £197,163.  If just 2% of the house sales in 2007 came from these celebrity mansions, that means the typical house was only actually worth an average of £160,370.

The 2008 average house price had “slumped” to £159,986 – but if our “Celebrity Mansions” have actually been dropped to a more reasonable price of £500,000, then a normal house would have had an average price of £153,046 – only a 5% drop on a typical house price.

I’m not saying that these figures are right – but I am certain that newspapers would rather report a 16% drop than a 5% drop, so it’s not in their interest to investigate the effect of skew factors like celebrity mansions and other artificially high house prices.

Working Things Out in an Objective Manner

So, let’s try and test the BBC’s figures in an objective manner.  Using a combination of http://www.rightmove.co.uk and http://www.ourproperty.co.uk, I’ve managed to get a selection of different houses with their current asking prices and the history of prices that houses in that road have sold for in the past.

The idea is, we can compare the news reports – Prices Fall to 2004 Levels – to what’s really happening.  Is a house in Bristol really selling today at what it sold for in 2004?  How long does a particular property listing remain active – and what’s it’s final selling price?  I’m also going to split by size of property – so we’ll have a category for 5 beds, 4 beds, 3 bed semi, 2 bed terrace, just to get some like on like comparisons (and filter out the flukes).

Each week I’ll update the table with the current asking price or the sale price, and as each property sells, I’ll replace it with a similar one.

House Selection Process

To try and be fair, I’ve ignored all “50% shared ownership” and similar schemes.  I’ve also excluded properties that are listed as “Requires some modernisation” or anything else that would artificially lower the property price…  I’ve also had great difficulty identifying the actual house numbers for some listings, so I’ve taken an average for similar properties on the same road in these cases.

The first category I chose was 2 bedroom terraces.  There were over four hundred properties that matched this criteria in Bristol – ranging from £100k in Eastville to £355k in Clifton.  Terraces are tricky to price, because a couple of the sites I use don’t split between Mid-terraces and End-terraces (which are usually more in the category of Semi-detached).  I picked 5 properties here in different areas and different price brackets.

The second category was 3 bedroom semi-detached houses.  The search found over 600 of these for sale in Bristol, with a range from £75k in Knowle to over £500k in Redland.  The difficulty here is that semi-detached houses seem to be quite rare in Bristol.  I think this is a relic from the industrial age, where whole rows of terraces were built for factory workers, with then a large detached or pair of semi-detached houses at the end of the row for the supervisor.  This means that it’s been difficult to create a reliable average price history – typically, the prices are based on only one or two house sales in that year.  Again though, I’ve tried to select a range of properties in different areas and prices brackets.

In the third category, I selected 4 bedroom houses.  Here, there didn’t appear to be a huge price gap between Detached and Semi-detached, so I’ve gone for a mixture.  There were only just over 400 properties available, ranging from £157k in Warmley to a cool million in Sneyd Park.  Once again, I’ve tried to get a representative range of properties.

The fourth and final category was 5 bedroom houses.  Amazingly, even at this size, terraces were still available, but I’ve again filtered them out and stuck with Detached and Semi-detached.  At this end of the market there were less than 140 properties found in the search, but the price range is still impressive, starting with £182k in Mangotsfield and ending at a fantastic £1.6 million in Clifton.

Summary of Bristol House Prices

Here’s the results I came up with.  2004 Average refers to the average price for a similar house in that road in 2004 – or the most appropriate year if no 2004 sales matched.  Similarly, 2007 Average refers to the average price for a similar house in that road in 2007.  The rest should be self explanatory.

Looking at this data, we can already see some interesting results. Although most house prices have indeed fallen since 2007, a few optimistic sellers are still pricing their properties at – or even above – the 2007 value. Only time will tell whether these properties sell, and if so, for how much.

The graphs of the average house prices for each road are also worthy of a quick look – without exception, it seems that “Expensive” houses seem to have jumped up in price a lot, but the other four have generally all increased at a similar rate…

Average house prices for a 2 bedroom terrace in Bristol

Average house prices for a 3 Bedroom Semi-detached house in Bristol

Average house prices for a 4 bedroom house in Bristol

Average house prices for a 5 bedroom house in Bristol

My final thought on the subject – until some sales come through, or the houses are taken off the market – is just this: Although it’s clear now that during 2008 house prices have indeed fallen substantially, would you be confident in any trend that was based on a graph that looks like one of the four above?