The Media and Property Prices

Key Points The data sources used by the press can often skew reality What the press reports is often happening all the time, just because they report it does not mean it is new Almost every product or service has the ability to be misused

What the Media Use to Predict Property Prices

There are many sources of data to tell journalists what is happening to the housing market. Here are just a few:

• Land registry
• Asking prices (as reported by agents)
• New applicants registering (as reported by agents)
• Mortgage application numbers (as reported by lenders)
• Average incomes and so percentage of income used to pay mortgages (as reported by the Office of Statistics)
• Statements from people who should be in the know (such as economists)

All these sources of data tend to vary for different reasons so it is unsurprising that the media all too often produce conflicting reports. Good journalism is sadly lacking in this country and reporting single disputable sources of data is all too common.

The most frequently misleading reports are based on land registry because they are definitive figures. Definitive, but out of date. Even so this is how the media reports versus the reality of a traditional cycle.

In November and December offers agreed are generally falling but the media reports the completions from the autumn activity and say prices are going up. When the spring arrives offers agreed are rising but the media reports the completions from December and suggests prices are moving down. When summer comes they report prices rising even though offers agreed are falling. In short those who write articles based on land registry data are always about two to three months behind the real market where deals are being done.

This also confuses vendors, especially in the summer when there can often be unrealistic expectations about how much their property is worth. The market is dropping but they blame the agent and point to media reports telling them the market is rising. It's a bitter pill to swallow and rather than accept it many vendors change agents instead of taking advice.

Season		Reality		Land Registry		Media Reports
Spring		Prices Rising		Prices Falling (Winter Completions)		Prices Falling
Summer		Prices Falling		Prices Rising (Spring Completions)		Prices Rising
Autumn		Prices Rising		Prices Falling (Summer Completions)		Prices Falling
Winter		Prices Falling		Prices Rising (Autumn Completions)		Prices Rising

Outside of misreporting the traditional cycle the media also likes to manipulate any statistics it can to make a story, and property is always a good story. Sometimes it may just be poor reporting and research that leads to headlines of "Property Prices leap 20%" but when reading media articles about real estate values there are several ways to know if the story is worth the paper it is written on.

Firstly investigate the figures yourself. House prices do not rise consistently month after month as we have seen in the traditional cycle. Global events also cause fluctuations that either change or exacerbate the cycle. An example of this occurred in 2003 where the war on Iraq caused priced to drop by around 10-20% in central London. The war over, prices corrected themselves and then in the spring of 2004 rose another 10%. This lead the media to report that "House prices are rising by 18.5 per cent a year - Are we heading for a crash?" (The Independent, 3rd April 2004). Enough to make anyone think the market is over cooking itself. What the media didn't consider was that half of the rise was down to a correction of a falling market. The graph below shows how easy it is to misreport even in a market as large as London over a four year period.



Taking the raw data it is possible to report the above in the following ways:

• "House prices crash more than 5% in less than 6 months" using Q3 2001 to Q4 2001
• "London market moving up more than 20% per year" using Q4 2001 to Q3 2002
• "House prices static for months" using Q3 2002 to Q2 2003

At a local level the media also loves to talk about "hot spots" in London on a month by month basis as if this were some reliable guide as to the best area in which to invest. Price movements at this level are however, even more erratic as the following example shows.



Taking the raw data it is possible to report the above in the following ways:

• "SW4 properties crash more than 10% in less than 6 months" using Q1 2003 to Q2 2003
• "SW4 properties boom nearly 20%" using Q2 2003 to Q4 2003
• "SW4 house prices static for over 12 months" using Q4 2002 to Q1 2004

The trouble is most news articles fail to mention their source but when they do, check it for yourself, it may just be a journalist manipulating figures in order to get himself a story.
Secondly, and on a similar note, watch out for any of the following:

" many senior officials believe "
" leading economists are saying "
" it is widely believed "
and so on! If you have ever had to write an academic essay you will know that all sources must be quoted. Why it is then that our leading journalists need only say, "leading city economists believe" and not quote who those economists are or where they have published their research on what they believe, is a mystery.

Thirdly where the media do actually quote a source, do the obvious and find out how reliable that source has been in the past. As an example, in the Autumn of 2004 the Nationwide Building Society reported that property prices had fallen for "the first time in three years". This was certainly true according to their own records of what they were lending on. That was the key - what they were lending on. The definitive figures from Land Registry which included what everybody else was lending on and what had been bought for cash actually showed property prices had fallen twice in the last three years (and four times in London!). Although very useful sources the data from lenders can be distorted depending on their marketing. It could have been, for example, that over this three year period the Nationwide had been trying to attract more affluent borrowers and so as a result the value of property they were lending on was continuing to increase month after month. If this was the case the data would be good reason to give everyone in marketing a bonus but does not accurately reflect the true market.

Further to the above point investigate how the source has come to their figure. This is crucially important. Take the headline, "Property prices expected to fall 30% in next two years". Read the text a little more and find the part, "according to the company XYZ".

Company XYZ maybe a reasearch company in which case they create a number of scenarious. One of which might be:

• If the United States goes into recession and
• if resticted oil supplied cause inflation to rise above 10% and
• if the Bank of England increases interest rates to 10% and
• if unemployment rises above 15% then
• Property prices will reduce by 30% over the next two years

There is nothing wrong with this research, there can be plenty wrong with the way it is reported

True Story - A one sided argument On Saturday 3rd April 2004 The Independent Newspaper lead with a front page story that asked "Are we heading for a crash". Correctly they assigned quotes from the Halifax which said the rises were "just another milestone" but then perhaps the journalist became frustrated that no one would support his headline. He continued, "Some commentators believe that present house values are unsustainable and the only question is when, not if, the market will crash" but did not give any idea who this panel of experts were and where they got their information. The only source he found to back up this view was a stock broking company trying to compare house prices to shares.

If all that were not enough even the same media outlets are quite ready to contradict themselves as in the case of the following headlines from the BBC:

• 1st March 2005: "House prices show slight increase"
• 4th March 2005: "UK house prices slip in February"
• 31st March 2005: "House prices dip worst in a decade"
• 5th April 2005: "House prices stage rise in March"

and so on!

For more on how the media and others measure the future potential see the section Is a Property Market Overvalued

Fashionable Articles and Tragic Stories

Over the past few years many people have been taking out 100%+ mortgages. They went immediately into negative equity but the press were not interested. At the time the fashion was to talk about a market rising.

In 2003 millions of homeowners were thrown into negative equity when military action in Iraq began but the press was more interested in the War on Terror than property

In 2008 there was not much else to talk about except the global credit crunch and then the media wanted to talk to people in negative equity.

Interestingly statisticians are taught that they must have a large number of people for research purposes before they can draw conclusions. Journalists, on the other hand, are taught that they must have at least one 'Human Interest Story' for a good article.

So if it is time to scare monger about borrowing more than your property is worth (especially when the price of the property goes down) it is not hard to find one person in that position if it is fashionable enough to do so. If you can't find someone ask your sisters friend to pose for a photograph and then make the rest up, no one knows how to check the authenticity of a name and most simply want to gasp at the terrible situation.

The Use and Abuse of Mortgages

Journalism is a difficult job. All too often the individual is working against tight deadlines and has already been briefed by the editor on what slant to give a story.
While there are some who make up fantasy figures to illustrate the point most will try and find a real person but to fit into their piece the right way the truth sometimes has to be bent a little.

Lets take an example where the journalist needs to write a story about someone who took out a loan and now cannot afford to repay it.
The facts might look something like this:

• Ms X took out £200,000 loan on a £300,000 house
• Ms X was fired from her job due to incompetency
• Ms X cannot find a new job because of the way she lost her last one
• Ms X does not have much in the way of savings but could sell her house and rent

Now lets write the story:

"Ms X, a 24 year old administrator from Liverpool, owes the Halifax £200,000 for a mortgage she secured against her house two years ago but she now the bank might want it back. After loosing her job in December she has found it hard to find new employment despite applying for over fifty positions and her savings are starting to run out. If she cannot find work soon she will not be able to cover her mortgage payments and the bank could repossess her house."

All the facts are true, no one can deny it, but some of them are missing. Furthermore the last sentence contains the dramatic concept of repossession although anyone who read or listened carefully would realise she could sell her house and repay the mortgage. This is not a mortgage story, it is an employment story dressed up to look like a mortgage story.

The second type of press reporting surrounds an important principle:



You can buy a hammer at a shop to push some nails into your wall and hang up some pictures. Like many people you can hit your thumb, instead of the nail, with your hammer and you can curse.
You know there is nothing wrong with the product, you have just been a bit of an idiot.
But when it comes to financial products those who misuse them are often dressed up as the victim for the purposes of making a good story.

Here are another set of facts:

• Mr Y used every last penny of his savings on a deposit for a buy to let
• Mr Y did not make any contingency plan for what to do if the property did not let immediately
• The property needs some work as the hot water and heating do not work properly but Mr Y cannot afford to do it
• The tenants who moved in won't pay the rent until the work is done

This can be re-written:

"Mr Y, a self employed tiler from London, decided to purchase a buy to let investment after reading about the successes others were having in local newspapers. He bought a two bedroom apartment eight miles from where he lived and rented it out to a local couple. Now they are refusing to pay the rent Mr Y needs to cover his mortgage payments and he is worried it won't be long before the bank will repossess the property."

Again all the facts are there, albeit one-sided. In reality Mr Y was being a bit too greedy. Instead of buying somewhere smaller and holding some funds back for the unexpected he stretched himself to the limit.
But the article would have you believe he was very unfortunate and of course we have got the all important word 'repossess' in.

In summary think very carefully about what you read in the papers, see on the television or hear on the radio. Remember:

• There are always people in negative equity in good times or bad
• There are always people who have bought problems on themselves
• There are always people who will misuse mortgages and credit

The real question is how many people and is it actually a real problem. If for example there were 1,000 people in negative equity last year and there are 10,000 people now that might suggest an issue. But does it? Many of these people may be totally unaware of their situation as they have stable jobs and no need to sell. Negative equity only becomes a real issue when people need to sell and for this several factors must come in to play:

• The person needs to sell
• It is not possible to rent the property out and cover the mortgage
• There are not enough buyers on the market to achieve the price necessary to cover the repayment of the loan

For all of these to coincide is very, very rare and generally only when a whole economy goes into recession.