The Office for National Statistics is under intense pressure having seemingly downgraded the value of UK property after adjusting “weightings”. If the figures are to be believed there was a reduction of £27,000 in the average value of London property between January and February of this year. Many London property owners will be doing a double take today unsure as to why their property has apparently fallen in value between January and February. So what has happened?
Did the ONS overstate the housing market in January?
At this moment in time the ONS is being rather vague with regards to the significant adjustment in the average house price index. Not only have we seen a £27,000 difference in the average value of London property but there would appear to be a difference of around £8000 on the average value of UK property as a whole. The average London property is now estimated to be valued at £524,000 while the UK as a whole comes in at £283,700.
It is worth noting that the average UK property value is now back to levels last seen in July 2015 despite having had a seemingly strong last 12 months.
What does the ONS have to say?
The ONS is suggesting that London property prices have fallen in February and that the January index was adjusted to reflect the changing types of properties being acquired. It is no secret that the average UK property value indexes have to be weighted to take into account different types of property and their influence on the market but how could they get it so wrong?
Many experts were disappointed at the way in which the information was quietly released with little or no real explanation. There is no doubt that the ONS will come under intense pressure in the short to medium term but does this really have any impact upon investment decisions?
What use are these indexes?
The average property value indexes for the UK and London offer a benchmark for those looking to value properties for sale. At the end of the day property markets come down to supply and demand although a significant reduction in the deemed average value of property across the UK could have an impact upon investor sentiment. However, all investors have their own particular way of measuring the value of a property including rental income to name but one.
When you also take into account the fact that the Land Registry index, not to mention those provided by financial institutions, tend to give very different average value estimates it is not really a big problem. The only issue is that the ONS seems to have misjudged certain elements of the UK property market and experts will now wonder if other information is as reliable as first thought.
The re-weighting of the UK and London average property value indexes has certainly caught the headlines over the last 24 hours. It is disappointing to see a body such as the ONS making such seemingly simple mistakes but do investors really care? Many have their own way of valuing properties and while average property value figures offer a guideline, how much use are they really?