Don’t be fooled by house price ‘rises’

London house prices have returned to their peak, according to the UK’s largest property website. Rightmove.co.uk says sellers are now asking for an average 0.8% more than they were in November 2007. So the average asking price for London property stands at an eye-popping £416,157. But can you trust this data?

Looking at recent press reports of a “frenzied market” and “foreign buyers on shopping sprees”, you’d be forgiven for thinking the boom times are back. But you’d be wrong. Rightmove focuses exclusively on the price a seller wants to achieve. This can be miles above the one actually paid when a sale completes, as James Ferguson points out in his latest Model Investor email.

For further evidence, consider that the government’s data for London house prices shows them averaging £303,680. This figure is based on completed sales. Not only is it well below the Rightmove number, it’s also sharply down from the £350k peak recorded by the government in January 2008.

And, as figures from estate agent John D. Wood show, prices for some types of property are falling faster. Flats, for example, are down a full 20% as transactions have slipped by 22.6% from their peak in March 2008.  Sure, some areas are doing well (flats in Chelsea are only down 11.6% from peak), but these are the exceptions. Even large “banker belt” houses – over 3500 sq ft – in prime central London were selling in September at 46% below their August 2008 peak (see chart below).

So if you want some real insight into the state of the property market, best not listen to the estate agents, especially when sales volumes are low so most price data is unreliable. Although, as Ferguson notes, “who can blame a seller for trying it on?”