Why I don’t trust statistics!

And there is no such thing as a national housing market – just thousands of small local markets which inter-relate to some extent

COMMENT by DAVID PERKINS

THERE are so many duff statistics around these days that it is difficult to know where to start.

Probably out there somewhere is an accurate statistic but research suggests that 87.3 per cent of all statistics are totally erroneous with 83.45 per cent of them spontaneously invented!

Whatever, even less reliable are the highly-selective data regularly fed to the media by the leading mortgage lenders.

All have an agenda. Most – somewhere in the small print – admit that they are “adjusted” and only loosely based on the raw data.

Indeed, people like the Halifax and its arch-rival in the publicity stakes, the Nationwide, sport in-house teams of statisticians and economists who, one suspects, take their instructions from the PR department!

As I write, the media junkies are still feasting on an announcement that house prices fell faster in March than at any time since 1992.

Didn’t the Halifax PR team do well? That quickly became lead story on all TV stations, pushing attempts to extinguish the Olympic flame well down the batting order!

The Halifax has decided that house prices in Wales have, on average, eased back 4.7 per cent so far this year.

What the Halifax failed to add was that this comes after a 188 per cent increase over the last decade – based on Land Registry data.

As for the West Midlands, prices there are down five per cent so far in 2008 but that comes after a 150 per cent increase over the last 10 years. Again that comes from the LR figures and so is based on all residential transfers.

Mind you, the Nationwide had only recently put out a commentary pointing out that in some parts of the West Midlands, house prices have actually increased since January – yet the media pounced on the Halifax as evidence of the gloom and doom!

Of course, the real target of the Halifax PR team was the Monetary Policy Committee of the Bank of England: the widespread press and TV publicity came as a useful bonus.

This was a blatant attempt to panic the members into agreeing a full half-per-cent reduction.

The attempt failed and after the more cautious quarter-point cut was announced, some lenders reacted by putting certain mortgage rates up – the Nationwide among them!

With much inter-bank lending still suspect, most of this modest reduction will have gone towards improving bottom lines.

In the early 1980s, I remember having lunch with the then governor of the Bank of England, Sir Robin Leigh-Pemberton, and his deputy, Eddie George, who was then responsible for UK interest rates and consumer credit.

As it was a good lunch, by mid-afternoon over the port, they quietly conceded that the UK’s interest rate policy was decided in Yorkshire and merely reflected in the City of London.

How things have changed in the subsequent 25 years! Now such policy issues are settled in Washington by the ‘Fed’ – though perhaps with half an eye on the European Central Bank.

Yorkshire has lost its influence, while the Bank has its own statisticians and economists.

That said, Governor Mervyn King – as with ‘steady’ Eddie George before him – is not so easily swayed.

With over 10 years’ experience, the Monetary Policy Committee now draws on many more sources of data which serve to put any urgent diktat by the mortgage lenders into perspective.

Where the Halifax, the Nationwide et al get it wrong – big time – is over the basic notion that there is such a thing as a national housing market – and one that reacts like a real market.

There, in my book, lies the real fallacy. There is no single housing market, just thousands of small local markets which inter-relate to some extent.

Some are holding up well; others are quiet. It all depends on local conditions. This also overlooks the fact that something like 79.3 per cent of buyers move less than 10 miles.

That factor alone makes all these ‘global’ statistics virtually irrelevant – and of far less importance than temporarily extinguishing that Olympic torch.

Ask any group of people where blame for the downturn in the market lies and 86.5 per cent will point to the sub-prime mortgage market in the USA – although 93.9 per cent of them do not know what a sub-prime mortgage market is!

As it happens, I had the opportunity of meeting a trade delegate of US Realtors only last week where, surprisingly, 87.5 per cent of them came from Florida – the second accurate statistic.

The other two in the party were from New York and Connecticut. Yes, their market had slowed but did they blame the sub-prime mortgage fiasco?

No! There were a few extra repossession sales but not that many.

The real problem was with the media, which kept talking about a sub-prime mortgage crisis and that was slowing things down a little, but only a little. Each sales-person blamed their media for making such a drama out of it!

The Florida market is nothing like as bad as the impression created, they assured us. And remember that Florida is one of the areas, supposedly, worst affected.

So who, in my opinion, is to blame for much of the trouble over here in the UK? Would you believe it? The media.

There is nothing like bad news to sell papers, and TV news editors read the morning papers avidly as source material.

There is one Government initiative which would help – make it unlawful for anyone to discuss the housing market anywhere, at any time! Please just leave the estate agents to get on with it!

Even if the lenders’ statistics were reliable, the media presentations get skewed anyway and, unfortunately in this regard, 74.8 per cent of people believe their newspaper and 87.4 per cent their TVs.

Getting back to my initial point, the rivalry between two of the largest mortgage lenders – one a major building society turned bank, the other the largest remaining building society.

When both were societies, one had professional people as its main clientele: effectively funds saved by hard-working Yorkshire folk were funnelled south to fund home-buying in Surrey.

In contrast, the Nationwide, with its Co-operative Permanent roots, had a more blue-collar image offering different loans, to different people, in different areas. Accordingly, both lenders apply their own adjustments to very different raw data in the first place.

However, neither of them has a clue about a major section of the market. Indeed, it pays them to play it down, although it can range from 20.7 per cent to 35.9 per cent in times of mortgage frugality.

I am talking about the cash buyers whose numbers can vary quite significantly, although nobody has an accurate handle on the numbers. Anecdotal evidence suggests they can be as low as a quarter of all buyers to as high as over a third.

Basically, when mortgage money is cheap and plentiful, many buyers will still take out small loans but then use the surplus funds for other purposes – cars, new carpets, or exotic holidays – status notwithstanding.

When mortgage money gets tight, astute estate agents simply concentrate on their cash-buyer contacts or those would-be buyers planning to trade down-market.

With a little effort, it is surprising how many sales can be facilitated in a well-structured chain, all sustained by a single mortgage.

It is only the media which assumes that when the supply of mortgage money is restricted, the housing market also dries up. Forget location, location, location – the vital factor is motivation, so check that first.

Basically, if people can wait, most of them will. Either they find what they want fairly quickly, or they leave it late, tight up against the personal deadline! Ditherers aside, the real market depends on those who must move.

Where the media does not help is that these genuine cash buyers soon realise they have powerful negotiating potential especially when the sellers come to compete in the marketplace with an auction-load of property sales, many from mortgagees in possession.

Hopefully this source of property will not be aggressively publicised. Last time major lenders, in desperation, started to allow their agents to advertise the fact, there was no reserve.

Arguably this was an illegal breach of trust as the original mortgagors were rarely consulted. Damagingly this news immediately gave the downward spiral added impetus.

There is no need to panic – so let’s hope common sense prevails.

•David Perkins is widely regarded as the

UK’s leading estate agency compliance

and training consultant.

He can be contacted at:

PO Box 33

Carterton

OX18 3WZ

on 0870 350 1865

or by email at david@davidperkins.co.uk

This article first appeared in the May 2008 issue of Estate Agency News