That's a good point Decca. I wonder if that means there is likely to be a better chance of a bargain in the winter. Fewer people looking etc.

quote:

Originally posted by northlondon:
I wonder if that means there is likely to be a better chance of a bargain in the winter. Fewer people looking etc.

Yes, I think this is correct.

Harder to sell your own in winter though, which puts many people off.

quote:

Originally posted by Fran Tick:
... have you ever plotted the land registry data? If so you will have seen how prices do vary during the year, basically it's a dip around Xmas and a peak around the spring/summer.

Yes, the house price data does show seasonal variations, and is roughly about 1-2% below trend in Jan/Feb, and about 1-1.5% above trend in Jul/Aug - it is worth trying model the effect, but as the methodology is not published, one has try and reconstruct how it might be done.

There seem to be two essentially different ways to tackle this.

One approach is to argue that as HPI is distributed non-uniformly over the year, one should take the overall annual HPI, and then re-distribute this evenly over each month. The redistribution could be done with a monthly template and scaled on the annual HPI. In this model the corrections vanish if annual HPI vanishes and reverses if HPI reverses.

The other approach is to argue that house prices exhibit a constant amount of seasonal variation (in percentage terms), irrespective of whether HPI is positive, zero, or negative. In this model the seasonal variation is always the same fixed percentage.

If you take the historical data, and take a diff from a non-lagging rolling average, and average into monthly bins (model 2 above), then you do recover a monthly template that is close to SA adjustment applied by Nationwide, Halifax, or whoever published the data.

But there is also considerable scatter, partly down to inherent volatility, but also because one would expect the size of the adjustments to be proportional (at least in some broad way) to the underlying annual HPI (as the SA is simply redistributing this number, model 1 above). Doing this improves the fit, but is not the whole story as there is still a residual seasonal variation even when HPI is roughly zero (as in 1992-95), so it looks more like a blending of the two models is needed.

There is also the awkward question of whether the normal seasonal dynamic applies at the peak of the cycle, or whether volatility driven by uncertainty (and newspaper headlines, IR expectations, elections) swamps it, so that it is no longer particularly relevant and should be ignored. Obviously, the SA at the present time should be treated with some caution, and certainly shouldn’t be the sole basis for calling a dramatic headline (whatever the direction).

quote:

Originally posted by beecher:
There are huge regional variations which make these headlines meaningless. I'm sure in the south, prices will fall but that is not likely nationally. The Halifax predict a 3% rise in Scottish prices, while London housing prices are set to fall by 4%.

House prices in the north are just as overvalued as everywhere else if you look at what people earn. I don't buy this rubbish about the north being immune from prices ever dropping. Don't forget these regions have seen the most growth in the last few years, have northern wages kept pace with 200% house rises in the last 3 years? Nope thought not.

CurlyWurly,

You,re bang on the money there ....Apparentley, the average lending is now 5.7 times income!!!!! DING DING DING (can anybody else here the warning bell?).

Manchester is teetering on the brink just like every other major city regards house prices. Are we immune? of course not. I've never heard such rubbish....Curly, was it an estate agent site that said it was immune?

I dont go for seasonally adjusted this and that. I use good old common sense when it come to purchasing. OK, so I missed a few quid in the last couple of years, but I'm not going to get a spanking this time next year.

Dress it up whichever way you care. I can garuntee that prices WILL NOT be this high next year or for that matter later this year. We are already seeing more properties for sale each week and the prices are falling...and they're still not selling.

Search Rightmove for M21 and you will see three indentical houses - one put on the market 8 months ago for £285k (not sold) 2 doors down went on the market 4 months ago at £249,950 (not sold) and then another went on the market last week at £245,000.....I've already done the Netsearch on the last one which was bought for £240,000 12 months ago, so after all fees, the guy is walking away with a loss IF he sells at full asking price.

Thanks for the reply phugoid.

From the way I understand it I agree with your method 2.

As for method 1 I really don't agree at all. If June is normally a strong month for house price growth, then it will be a strong month regardless of whether the HPI across the whole year is +50%, +20%, 0%, or -20%. So it seems obvious that we want a negative seasonal adjustment for June even if prices are going down across the year.

I understand you have blended the two methods to reverse engineer the best fit but I am not sure this is possible to do given the lack of precision in the published figures and the overall complexity of their probable method.

As for querying the use of the usual methods at the peak of the cycle, realistically we won't know it was the peak till some time afterwards so I don't see that it's right to throw away the seasonal adjustments now.

slater14, I also think prices have been and will continue to go down and prefer the Hometrack data as it isn't seasonally adjusted. But like it or not it's the Nationwide data that gets the headlines, closely followed by the Halifax. The seasonally adjusted results from both have been in the headlines for months if not years so I think it would be ironic if they dump the seasonal adjustment now, just at the point where the falls are going to feed through bigtime.

quote:

Originally posted by slater14:
CurlyWurly,
You,re bang on the money there ....Apparentley, the average lending is now 5.7 times income!!!!! DING DING DING (can anybody else here the warning bell?).

Could you post a cite or two for this please.

quote:

Originally posted by curly_wurly:

House prices in the north are just as overvalued as everywhere else if you look at what people earn. I don't buy this rubbish about the north being immune from prices ever dropping. Don't forget these regions have seen the most growth in the last few years, have northern wages kept pace with 200% house rises in the last 3 years? Nope thought not.

I'm not sure what you mean by "the north". slater14 seems to think you mean Manchester.

Do you know much about the Scottish housing market? There have not been 200% increases in the last 3 years to start with, so I think that you do not. I did not say that prices in Scotland were "immune from ever dropping", just that the Halifax predict there will be a 3% increase in prices.

National statistics are meaningless, and people will always pounce on the statistic that they think proves their case.

Personally I hope prices do drop, but there is no evidence of that happening where I live.

Joolz S,

I cant remember where I got that snippit but heres the general gist as I remeber it -

Starting salary for Degree Graduate aprox £22,000

Starting Price for first home £169,000

...Can anybody see a problem with the sums?


Multiples are so far stretched beyond 3.5 because of interest only mortages, 100% mortages (in some cases over 100%, however that trick works!) 35,40,45,50 year mortages Self Cert etc. etc....it distorts the borrowing because you are never repaying the debt merely paying interest that has accrued on that debt or you are stretching the debt over much longer periods than has been considered "safe" for many many years or god forbid, you're doing both!

If you cast your mind back to the 80's and 90's crashes you will find that mortage lenders had pull exactly the same stunts to get people onto one of their mortages as there was no possible way they could afford a "standard" mortage for the property....eventually, it will come crashing down like a pack of cards because wages havent kept pace with house prices. Most people are over extended. Interest rates will rise. Lenders will get more stringent which will make it harder for somebody to buy your home because they cant get the mortage.

Taking that road I mentioned above as a general example, now I know for a fact that these people do not earn anywhere near £75,000 which is what they would need to buy the house @ 3.5 salary....So what are they doing? either lying (as one poster already said) Interest Only (in which case probably beyond 5.7) Interest Only & Lying (oops!) Interest Only & Lying & 35 year mortage.......hhhhmmmm I wonder.

beecher,

I dont think he meant Manchester in particualr...but the last time I looked, we were in the North!

We have had 200% rises in Manchester and I know its simialir in Leeds, Liverpool, Preston and many other areas in the "North"

quote:

Originally posted by slater14:
beecher,

I dont think he meant Manchester in particualr...but the last time I looked, we were in the North!

We have had 200% rises in Manchester and I know its simialir in Leeds, Liverpool, Preston and many other areas in the "North"

He was replying to my post which was talking about Scotland, not the north of England!

quote:

Originally posted by slater14:

Taking that road I mentioned above as a general example, now I know for a fact that these people do not earn anywhere near £75,000 which is what they would need to buy the house @ 3.5 salary....So what are they doing? either lying (as one poster already said) Interest Only (in which case probably beyond 5.7) Interest Only & Lying (oops!) Interest Only & Lying & 35 year mortage.......hhhhmmmm I wonder.

The road you're talking about doesn't sound as if it has houses which are typical first time buys, so I'd reckon they use the equity from the 200% rise in prices you've quoted.

Joolz S,

http://www.bankofengland.co.uk/fsr/fsr15art1sec6.pdf

http://www.mortgageintroducer.com/CaseStudies/220504.htm


Beecher,

Quite possible for one...but two are FTB

a few points to ponder from all the preceeding threads.
Why do first time buyers expect to be able to buy average price houses? By definition, average price means the average of cheapest and most expensive. Maybe it's part of getting old and grumpy, but when we were young, you didn't get everything you wanted handed on a plate, you had to earn the money to pay for things because there was no such thing as credit. When we first bought, many moons ago, we could only afford a cheap house that needed plenty of work doing to it. We did just that, and managed to sell at a good profit,which enabled us to move up market slightly, and carry on. I sometimes wonder if people are investing in houses to make money for doing nothing. Whilst it may have happened during the last housing boom, the levelling out that has happened means the "profit" will now only be there if the property has improvements carried out, making it worth more.
A well presented house, preferably in a good location, will ALWAYS sell.

.......at the RIGHT price

absolutely right slater 14. Another thought ( which rather gives me away as an old grumpy ) , when we first bought, men tended to be the only breadwinners, and "the good lady " stayed at home. This meant the 3.5 times salary had a ceiling effect on money to spend. Nowadays, both parties work, and the amount of money available is therefore up to twice what we had. I wonder if this factor has been partly responsible for the rise in house prices ?

quote:

Originally posted by slater14:
Joolz S,

http://www.bankofengland.co.uk/fsr/fsr15art1sec6.pdf

http://www.mortgageintroducer.com/CaseStudies/220504.htm

All I could find in the BoE report was that less than 50% of first time buyers have mortgages of more than three times their income. It also states that fewer of them have 100% loans. Hardly conclusive proof that average lending is 5.7 times earning.

Your second link actually weakens your argument, as it states that the person would find it very difficult to get a mortgage and should

quote:

consider buying a property that is in his price range or one that it situated just outside London which may be slightly cheaper to ensure that he does not over-commit himself.”

That was just a quick search on google and I must admit, I only skimmed the articles because I was searching the "5.7"...I'll find the actual article this afternoon when I finish my VAT return (which is only 3 days late !!!!!)

Hi again phugoid, having looked into it a bit more I think this is how it works...

The Seasonal Adjustment is based on historical data of years gone by, including the actual house price inflation seen by the year end.

When releasing 2004-01's figures, Nationwide have used the SA from 2003-01 as they don't know what HPI will be over 2004. Although they have their own estimate of HPI for 2004, they don't make use of this in applying SA during 2004.

At the end of 2004 the HPI for the year is known and a new set of SA, based on 2004's activity and all the preceding years, can be calculated. Nationwide then go back over 2004's figures, and preceding years, using this new SA.

This is why when you look back at historical data it seems a better fit than examining the monthly reports for the current year as they get released.

Jan Feb Mar
2000 1.712168 1.279981 0.055370
2001 1.709352 1.394377 0.065760
2002 1.743282 1.492831 0.131389
2003 1.820323 1.565923 0.234517
2004 1.871577 1.607901 0.296068
2005 1.871577 1.607901 0.296068 [identical to 2004]

SA% extracted from Nationwide's historical data spreadsheet.

So the seasonal adjustment elements of the historical data in your original link are periodically recalculated and so the figures are different from those in the original press releases which can be found here:

http://www.nationwide.co.uk/hpi/archive.htm

Hi Fran Tick

Excellent, and I think it looks right. You clearly show that the monthly SA factors really are copied from the previous year, and then updated (and frozen) later when there is enough data (on either side) to do a better job with the rolling average and the trend extraction. And that the press releases, and hence newspaper headlines, are based on SA factors recycled from the previous year. But to be fair, we can expect that the SA factors will vary only slowly from year to year, unless, of course, the market is structurally changed somehow – not really sure whether post peak is different or not

This fits nicely with what seems to be a standard(ish) method for seasonally correcting data – gory details here ...

Assume that the house price series Q can be decomposed multiplicatively into Q = T*S*I, where T is the trend, S is the seasonal variation, and I is the irregular bit. Then the first estimate of the trend T1 is given by averaging Q over a rolling window, so T1 = <Q>, where <> is the rolling average. The trend is removed, so S*I ~ Q/T1, and the first estimate of the seasonal component S1 is done by averaging Q/T1 into monthly bins. This allows a first correction of the series to remove the seasonal component, so Qadj1 = Q/S1. A second iteration can be done if needed, so T2 = <Qadj1>, S2 = bin average of Q/T2, and Qadj2 = Q/S2. Finally, the irregular bit can be extracted as I2 = Qadj2/T2.

The rolling average requires (let’s say) 6-12 month data on either side, and can’t be applied (at least not directly) within the last 6-12 months, leaving a gap - copying the S2 factors forward is the simplest way to fill it. The adjusted figures are temporary until they are 6-12 months old, when they are updated and frozen naturally be the method.

Sorry if I misunderstood you Beecher, my post was talking about northern english regions which many people think are still very affordable.

You're right I know very little about the Scottish housing market.