-Why are property prices so difficult to predict?
-Property price reports
-Example of average prices and their effects
Why are Property Prices so Difficult to Predict?
There are many reasons why this is the case. Firstly there hasn't been enough data collected and analysed to create a model that is accurate.
Secondly, properties are bought by people with their heart and not always with their head. As a result a property might be valued at £150,000 but if two people are competing who really want to live there, then it may sell for £165,000 as they bid against each other!
Another home might on analysis be worth £325,000, but if the seller is desperate to sell and there is only one buyer wanting to make an offer, but they can't afford any more than £299,000, then that's the 'actual' price paid and the final value of the property.
Other factors that make UK property prices difficult to predict are:-
1. We have an enormous variety of property types from brand new to 400+ Listed buildings.
2. Different locations in different areas, by street, can dramatically increase/decrease a property's value.
3. Prices offered can vary for the same property from one month to the next. If it's a property that two or more buyers want and can afford it in say May, then the price might be £210,000, but if there is only one buyer and lots of similar properties for sale, they may only offer £190,000.
So if you have ever wondered why estate agents' property valuations vary so much - that's why! No one really knows what an individual property will finally sell for until offers are in and the sale concluded.
Property Price Reports
There are now seven regular property price reports which are regularly reported in the media:-
Click on the links below to see the latest reports:-
The problem with these reports is that they give 'average figures' which when you are buying/selling or investing in property, they rarely relate to what is actually happening with your individual property's price.
The following example is a very crude way of showing how average property price statistics are misleading. All property price reports go to great lengths to ensure their data is accurate, but this example shows you why 'average house price' information is very misleading when you are buying/selling a property.
Example of Why Average Property Prices Don't Reflect Individual Property Prices
Imagine a small village with 30 houses in it:-
| ||Property's Value || Average Sale Value|
|Ten houses are two bed terraces||between £100,000 and £125,000||£112,500|
|Ten houses are three bed semi detached 1930s properties||between £175,000 and £225,000||£200,000|
|Ten houses are four bed detached 1980s properties||between £270,000 and £300,000||£285,000|
So the average sale value of the each of the property types vary and between them they give an average value for a property in the village of around £200,000.
Now imagine that the two bed properties become really popular and their average sales value increases to £120,000, showing an increase of 6.7%, but the people selling the four bed detached properties are struggling to find buyers, so their average sale price falls to £270,000, which is a decrease of 5.2%. Overall the average price of property for the village is now:-
Total £590,000/3 = £196,700
This gives a new 'village average property price' of £196,700 which is a drop from £200,000 of £3,300 or -1.65%. The latter is the information that will be reported in the media.
However, if you are selling a two bed terrace in the area this is misleading as your property has actually increased by 6.7% and if you are selling a four bed detached, it is also misleading as your property has actually fallen by 5.2%.
And in very crude terms, that's why property price averages are not helpful when working out what is happening to the price of the property you are looking to buy/sell.
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