A warning sign that house prices are about to turn down

Beware the Fathom-Zoopla!

If you’ve not heard of this, it’s an auction price index (API) which tracks how the sale prices for properties sold in the auction room compare with prices in the rest of the market.

The key point about the Fathom-Zoopla API is the premium, or discount, obtained by auctioned properties. In good times, auction results tend to be better than the conventional sales route. In less happy climes, they’re not – often by a long way. That’s often a sign that real underlying demand for property just isn’t there.

Below is the API chart from Fathom Consulting. The latest API reading (the red diamond) is 71.9, which means that auction prices were selling at a 28.1% discount in January. This compares with December’s 19% and “adds to survey evidence that the balance of power between buyers and sellers in the conventional market has begun to shift”, says Fathom’s Andrew Brigden. 

Meanwhile, here’s a chart from Bloomberg of the year-on-year change in the Nationwide house price index over the same timeframe.

Historically, whenever British house prices have been rising by around 10% year-on-year – as they are at the moment – auction values have been at a premium. Clearly, the opposite is happening now. In other words, this latest widening of the auction gap hardly bodes at all well for where UK property prices are heading next.

If you’re a regular reader, you won’t need reminding what we think. Tuesday’s Money Morning was on the same tack.

The API result suggests that property prices could be falling sooner rather than later.