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IFG Staff Writers 31 May, 21 11 min read

The state of the housing market – 2022

Most people don’t pay attention to economic data and financial news.

There’s only one piece of financial news that props up everyone’s ears, from pensioners to parents to people who just graduated.

That’s house prices and movement in the housing market.

People already on the property ladder want to see how much equity they’re building. People looking to upsize want to see how much value has been added to their house.

First-time buyers watch desperately at how quickly property prices rise and the deposits and incomes needed to fill those gaps.

You don’t have to invest in stocks or crypto or any financial instrument. But the one thing every single person does need is a roof over their head.

The economic and financial indicators of the housing market are necessary for everyone to understand.

How do we read housing market data?

What’s the state of the housing market? Where is the housing market headed?

Let’s explore.

How to read housing market data

Go to any newspaper site and you’ll see a few stories on the housing market every week.

One headline declares monthly prices have increased and another says year-on-year prices have increased. Another article pools opinion from industry pundits giving their latest predictions, while another piece talks about the dire plight of first-time buyers.

All these articles and pieces talk about prices in so many ways it can be dazzling.

The reason disparate figures circulate is because these stories are based on different indices that measure slightly different aspects of the housing market.

So, the key to understanding the housing market is being able to read the different datasets and indices.

House price data and indices: the basics

Most of the media focus their attention on specific indices:

 

Index

Data source

Sample size (approximately)

Coverage

What the data is based on

UK House Price Index

Registration data from HM Land Registry, Registers of Scotland and Land and Property Services Northern Ireland

 

100,000 a month

UK

Confirmed house sales

Nationwide

Nationwide mortgage lending

12,000 a month

UK

Mortgage approvals (by Nationwide)

Halifax

Halifax mortgage lending

15,000 a month

UK

Mortgage approvals (by Halifax)

LSL Acadata

HM Land Registry price paid data

80,000 a month

England & Wales

Registration of sale

Rightmove

Advertised properties on Rightmove

100,000 a month

England & Wales

Property listing

How to use each index

An important factor to consider when trying to read housing market data is to see how often the data in each index is published:

 

Timeliness

Index

When data is published after reference period

When the data is recorded

Most timely

Rightmove

Published during reference period

When house is advertised

 

Nationwide

1 week

Mortgage approval

 

Halifax

1 week

Mortgage approval

 

LSL Acadata

2-3 weeks

Registration of sale

Least timely

UK House Price Index

6 weeks

Registration of sale

 

We can then categorise the indices into three categories based on what the data is based on:

  • House sales: UK House Price Index and LSL Acadata

  • Mortgage approvals: Nationwide and Halifax

  • Property listing: Rightmove

Let’s explore the advantages and disadvantages of each

House sale indices

These indices offer the most comprehensive data on house prices in the UK.

The UK House Price Index in particular counts the registration of all sales within the UK. The index even allows you to zoom in to local authorities and cities to see house prices at a more local level.

The UK House Price Index is the most authoritative index and is used by the Bank of England to measure house price inflation.

The drawback of these indices, though, is the time lag of as much as two months. So, while the index is good to get a deep look into the market, for people looking for the most up to date prices to buy or sell, it may not be as useful.

The LSL index uses Land Registry data and adds its own forecasting model to estimate prices for the current month. Hence, it is not necessarily a ‘record’ of actual prices for the latest month.

Mortgage approval indices

Nationwide and Halifax use their own mortgage approval data, so they are not as comprehensive as the house sale based indices.

They also don’t include pure cash sales because of that, which make up around 30% of sales.

They use different methodologies and data, so their findings are different.

 

Of course, the biggest advantage of these indices is that they have hardly any lag and are very timely. This can be useful for people that need an up-to-date picture of the housing market.

Property listing indices

Rightmove acquires its data from the properties listed on its site.

Whatever price the estate agent lists a property at, that price forms part of the data of the index.

Of course, the disadvantage of this is that the sample size only covers Rightmove’s listings, and a seller won’t necessarily receive the asking price listed so the figures aren’t exact.

The biggest benefit of the Rightmove index is that it gives the timeliest data which can be important for people that need to keep their finger on the pulse of the market.

Housing market before and after the pandemic

After the financial crisis of 2008, house prices have been on a steady upward trend.

Average property prices in the UK went from just under £160,000 at the beginning of 2009 to over £230,000 at the start of 2020 just before the onset of the pandemic.

Many potential first-time buyers watched in horror as even the onset of a global pandemic could not stop the unlimited buoyancy of the UK property market.

However, the economic uncertainty caused by the ongoing pandemic gave many sellers and buyers second thoughts, temporarily dampening the mood of the market.

In the summer of 2021, we saw a slight drop in housing prices with average prices falling over £10,000 from June to July 2021. This fear was short-lived, with prices recovering just as quickly in August 2021.

Many market watchers were surprised to see the euphoria of the housing market, but we can pinpoint a few reasons for the behaviour of the market during the pandemic.

The government very quickly introduced a stamp duty holiday from July 2020 to June 2021, allowing buyers to save on thousands in tax on houses under £500,000. This incentivised buyers and sellers to keep the housing market going and allowed the property industry to continue making money in times of economic uncertainty.

The trend for more space and bigger gardens accelerated during the pandemic, with white-collar workers looking for more room as they worked from home. This caused a huge demand for detached and semi-detached homes.

It is only from September 2021 that we eventually saw a slight slowing in growth after the end of the stamp duty holiday, with both mortgage approvals and sales completed per month gradually slowing down.

But the market remains buoyant despite demand falling slightly due to supply problems in the housing market. As more people compete for a limited housing supply, the demand continues to exceed supply, keeping prices rising.

Future outlook

Inflation is at the front of every market watcher’s mind.

The Bank of England responded by increasing interest rates (read more on why interest rates went up).

This is bad news for those with mortgages on variable rates, as monthly payments can easily skyrocket.

Interest rates signal to people to save money, which could eventually cause a slowdown in the housing market. In the short-term, it could cause prices to soar even further as buyers try to race against the rate hikes and buy before any further increases in the interest rate.

However, higher rates make buying and moving houses more expensive for mortgage and remortgage applications.

Given a medium to long-term predicted increase in interest rates, it is reasonable to assume that the euphoric increase in house prices won’t continue, at least not at the same rate.

No one can predict the movements of the market, and given the perpetual lack of supply in housing, you can’t assume prices will necessarily plateau any time soon.

Given interest rate increases, increasing costs of living, the end of covid-era protections, and economic uncertainty, it is not farfetched to predict a less euphoric market going forward.

As with any personal financial decision, a lot of the decision rests on your goals and your own financial plan.

If you're in the market, be sure to check out our definitive guide to Islamic mortgages.

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