Don't believe the hype - house prices are falling

Leading property research firm Hometrack has rubbished reports that claim the UK property market is still rising.

It argues that the way some surveys have been conducted has distorted their figures, leading people to believe the property market is on firmer feet than is actually the case.

Hometrack's own survey shows house prices have now fallen 3.6 per cent in the last year, and it believes that other indexes showing, such as Nationwide's and Halifax's, are flawed.

Yesterday Nationwide revealed the results of its June house price survey - calculating that UK properties are 4.1 per cent more valuable than 12 months before.

But Hometrack believes it has found a problem in how they reached this conclusion.

House price indexes by mortgage lenders such as Halifax and Nationwide monitor house price according to mortgage approvals, Rightmove looks at data from agreed sale price, while the Land Registry and ODPM figures examine data based on completions.

This explains the time lag between different indexes, but Hometrack adds that measuring sales data - which the other surveys rely on - rather misses the point.

By looking at places where properties are being bought and sold, the surveys only take account of a small section of the market. Moreover, areas of the country that are still busy, where prices are rising, will naturally outweigh places where few deals are being done as the market is falling.

This means survey results are naturally too high.

Additionally, Hometrack points out that there is currently an all-time low in first-time buyers. With this section of the market not being accounted for, the figures that are being recorded are for people moving for the second, third, and fourth times - and therefore into more expensive properties.

"House price surveys that are dependent upon transaction prices are not taking into consideration the property prices across the whole market and are therefore distorting the figures and over-egging the market," commented John Wriglesworth, housing economist of Hometrack.

"This distortion is currently at its most marked with the extremely low levels of activity at the bottom end of the market," he added.

But the problem goes deeper, as this survey data is routinely used by policy makers - including the Bank of England - to decide what action is needed to keep the UK economy on track. For example whether interest rates should go up or down.

Hometrack looks to rectify this situation by polling estate agents in every section of the market - regardless of the number of sales.

By tracking prices from estate agents across the country, Hometrack's index is able to factor in the value of all housing stock including areas of more limited activity, the company said.

The Hometrack June survey found a month-on month fall of 0.2 per cent in the average house price on the back of three consecutive months falls of 0.1 per cent.

The property research firm reports that house prices have been falling for 12 months and show little sign of imminent recovery.

The national average house price, according to Hometrack, now stands at £161,600 down from a peak of £167,700 in June last year and down over three per cent in the past 12 months.