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House prices, damn lies and statistics Matthew Warburton - 08/08/2014

share_cash_300Today's Guardian carries the story that average house prices in London have jumped 19% in the last year, according to a report issued by LSL Property Services and Acadata. In Lambeth, prices have increased by a scarcely credible 38.5% and Wandsworth and Waltham Forest have both seen prices rise by more than a quarter over the same period.


The report's authors comment that outside London and the South East increases have been much more modest, averaging only 4.6%, and in some regions prices are stationary or even falling. But there are also reasons to question how the London data should be interpreted.


Another report on the same website shows data on the number of first time buyers and the average price they paid for their homes. There were 146,000 purchases by first time buyers in the first 6 months of 2014, up by 27% compared with the same period the year before. But the average price they paid - across the UK as a whole - fell by 1.4%.


These figures tell us two things. One is that the increase in purchases is far greater than any year on year increase in the construction of new homes, which means that a big share of the increase results from more existing owners putting their homes on the market. And they strongly suggest that the increase in average prices is accounted for by higher increases in the prices paid by existing owners selling and moving up the property ladder.


And the further implication is probably that more of the homes bought and sold this year are larger flats and houses released and purchased by existing owners. Part of the startling increase in average prices in London is therefore probably caused by increasingly larger properties being bought this year than last.


It is unlikely that, for example, the price at which any individual property in Lambeth sold last month is 38% higher than the price it would have fetched the same time last year. It is wrong to be complacent about the state of the London housing market, but headlines need to be taken with a pinch of salt.

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