When asked by a journalist why she had a mirror above her bed, Mae West answered, ‘to see how I’m doing.’ The same applies to property indices: owners, buyers, lenders and commentators need indices to make sense of what is going on in a market in which almost everyone has some stake. But if you look at indices over the last four years, from when almost everyone agrees the market peaked, you will find a big spread of opinion.
Both Savills and Knight Frank produce indices for London that show a fall in the market of between 16% and 8% respectively since 2014. Over the same period, the Land Registry says it was down 9% in Prime Central London – while for the same areas, Lonres (a firm that aggregates market information) reckon they were down 7%. A big London Estate (a proxy for the market) had a valuation that was 4% up in 2015 and flat in 2016. These are big differences. Does it matter? Well yes; sentiment is a funny thing and often self-fulfilling. Buyers like buying into a rising market and a ‘falling market’ is a good reason to sit on your hands. It also matters in court, getting a mortgage or settling a divorce. These discrepancies in what should be a transparent and sophisticated market shouldn’t happen.
Why do they? Much of it is down to methodology. The main estate agents’ indices use valuation to produce their figures. A basket of flats and houses is assessed by individual offices once a quarter. These indices have less to do with actual sales but a lot to do with how optimistic or pessimistic the valuer is feeling. When turnover is low, and your bonus is dependent on it, it’s easy to conflate turnover and value. Over time this can produce large discrepancies – so much so that one index had to be recalculated as it was wrong by nearly half. On the other hand you have the Land Registry which is compiled on completed sales. Unfortunately it is bald information that, for example, takes no account of lease length or size. It is also a lagging indicator as completions can be months – sometimes years – later. What you are measuring also makes a difference. Take so called Prime? Does it include Nine Elms? Or the Cromwell Road? You can start to see the problems.