The Nationwide House Price Index – The Real Figures v the Seasonally Adjusted OnesMonthAverage price (£)Real ChangeSeasonally Adjusted ChangeDifference2008Jan180,473- 0.9%- 0.6%+ 0.3% Feb179,358- 0.6%- 0.9%- 0.3% Mar179,110- 0.1%- 1.2%- 1.1% Apr178,555- 0.3%- 1.2%- 0.9% May173,583- 2.8%- 3.0%+ 0.2% Jun172,415- 0.7%- 1.1%- 0.4% Jul169,316- 1.8%- 1.7%+ 0.1% Aug164,654- 2.8%- 1.9%+ 0.9% Sept161,797- 1.7%- 1.6%Nil Oct158,872- 1.8%- 1.4%+ 0.3% Nov158,442- 0.3%- 0.4%- 0.2% Dec153,048- 3.4%- 2.6%+ 0.8%2009Jan150,501- 1.7%- 1.2%+ 0.4% Feb147,746- 1.8%- 1.9%- 0.1% Mar150,946+ 2.2%+ 1.0%- 1.2% Apr151,861+ 0.6% - 0.3%- 0.9%May154,016+1.4%+ 1.2%-0.2%
As suggested in my comment on Nationwide’s April house price index the difference between the doctored, or to use the technical term, “seasonally adjusted” figure and the real, unadjusted, figure is small in May. It is also likely to be small for the next two months. Nationwide’s press release, and hence the media comment, focussed on a seasonally adjusted increase of 1.2%. The real increase was 1.4% but a difference of 0.2% is within the margins of statistical error.
In fact Nationwide has adjusted its earlier seasonally adjusted figures by a total of 1%, by increasing the figure for 6 different months by 0.1% and reducing one month (May 2008) by 0.4%, resulting in a net change of + 0.2%. None of the real figures have changed, thus demonstrating very clearly just how much guesswork goes into the seasonal adjustments, particularly when a figure a year old has to be adjusted by as much as 0.4%. If this one month miscalculation was repeated on the same scale and basis every month the annual figure would be out by a whopping 4.8%, less than the annual movement in the index some years!
It is dangerous to read too much into a single month’s figures, although Nationwide’s figures are less volatile than those from Halifax and also more transparent as Halifax’s press release doesn’t include the real figures. It is difficult to understand why Halifax’s figures are more volatile than Nationwide’s as its lending numbers are higher than Nationwide’s and therefore it is able to work from a larger sample. I suspect that when we get Halifax’s May index it will also record an increase, my reasoning being partly that for the last two months it has reported unrealistically large falls.
Five months into 2009 it is becoming clear that just as most forecasts for house prices in 2008, including mine, were not pessimistic enough, nearly every forecast for 2009 is going to be too pessimistic. My forecast made six months ago for 2009 was for a fall of 8% by mid year, followed by a modest recovery leaving the market a net 5% down on the year. Despite the fact that my forecast was one of the least pessimistic I now think it is beginning to look too pessimistic.
Halifax, Nationwide and the Council of Mortgage Lenders all broke the habit of a lifetime and refused to publish a house price forecast for 2009. I suspect this was because they were all so bearish that their internal forecasts were for falls of around 15%, but they weren’t prepared to go public with such a negative figure. I suspect their concerns about the impact such forecasts would have had on the market were overdone.
What has happened so far this year demonstrates that there are enough people with access to funds and astute enough to back their own judgement on house prices to have neutered the impact of yet another 3 bearish house price forecasts. The net result is that Halifax, Nationwide and the Council of Mortgage Lenders all look cowardly. If they had made public what I suspect were their internal forecasts it would in retrospect have provided a robust defence against critics who consistently claim forecasts from people they describe as having a vested increase in the housing market are too optimistic.
Whilst it is obviously true that anyone connected with the housing market has a vested interest in it, what the critics choose to ignore is that generally they also have a better insight into early trends in the market before these are picked up by the indices. Having said that, this is much more helpful in forecasting short term trends than a forecast for a period as long as a year! It is also worth making the point that anyone venturing forth with a forecast wants to maintain any credibility they have and one doesn’t do that by making forecasts one doesn’t believe in.
I will leave you with a few other statistics from the real Nationwide house price figures, which show a very clear trend and provide strong evidence that the market is now moving as rapidly towards stabilisation as it did when it started falling:
Price changes over:
The last year: - 11.3%.
The last 6 months: - 2.8%.
The first 5 months of 2009: + 0.7%.
The last 3 months: + 4.2%.
The last month: + 1.4%.
The logic of Santander’s announcement to rebrand all their UK branches (Abbey, Alliance & Leicester and Bradford & Bingley) as Santander is obvious and when the integration has been completed will have clear benefits for those with a current and/or savings account with any of these brands as they will have access to a larger branch network. In particular Bradford & Bingley has a northern branch bias but Abbey a southern one and thus the geographical coverage will be much improved.
The group’s best savings rates are very similar in its three High Street brands and so there will be little reduction in real competition there but the current account propositions are very different. If Santander doesn’t want to lose market share in the important current account market it will be wise to continue offering both the Abbey and the Alliance & Leicester current account propositions, albeit rebranded Santander and with each current account being given a different name for marketing purposes. If it fails to do this there will be a regrettable reduction of competition in the current account market.
Santander’s already significant international coverage, which it no doubt plans to expand, will allow it to adopt a similar policy to HSBC and more easily market its overseas services to its UK customers and its UK services to customers in Spain and elsewhere.
Santander said that it would be retaining its specialist brands such as cahoot, Cater Allen, James Hay, Abbey for Intermediaries and the international divisions of Abbey, Alliance & Leicester and Bradford & Bingley. Although it makes good sense to retain some of these very well respected specialist brands I would have thought the logic for integrating its UK branches under the Santander brand would have applied equally to the international divisions of those brands.
In its press release Santander said that "one of the key drivers behind the rebrand is the switch to Santander's global IT platform, Partenon." I can only conclude that the IT benefits of amalgamating the UK branches don’t apply to the international divisions, but would expect these all to trade under the Santander name in due course.
Assuming its global IT platform covers mortgages it would also seem obvious that the same logic would apply to intermediary mortgage sales, at least of mainstream mortgages (which in any case is all Santander currently offers), but mortgages sold through intermediaries will continue to be branded Abbey or Alliance & Leicester. Abbey has been developing a new IT system for some time and maybe this is a factor.
For a bank with such a large slice of current mortgage lending as Santander it certainly makes sense to have more than one mortgage brand as it allows extra flexibility. For example if Santander decides to return to the buy to let market in due course it may prefer to do so through a separate brand. Apart from Barclays the top six lender groups in the current market all use at least two brands, although Lloyds Banking Group now has so many mortgage brands it will be culling some of theirs in the near future.
As an intermediary my main concern with these changes is that with Santander retaining its existing mortgage brands it makes it even easier for it to use dual pricing. A lot may well depend on whether competition in the mortgage market has increased significantly by the time of the rebrand, which is due to be finalised by the end of next year. The ideal scenario from a broker perspective, which would also be good for consumers as it would give them maximum choice, would be for Santander to adopt a policy similar to Nationwide and offer Santander branded mainstream mortgages both through their branches and brokers and use the Abbey and/or Alliance & Leicester brands for broker distribution of non mainstream mortgages it may not want to offer through its branches.
Today’s Metro has an article (p.4) about the number of births and deaths in England & Wales. Sourcing the Office for National Statistics it says that in 2008 there were 708,708 live births and that “the death rate for both men and women was the lowest ever recorded, at 6,860 deaths per million men and 4,910 per million women.” It also says "There were 509,090 deaths in 2008"
The figures for the death rate looked odd to me and so I did some simple calculations.
The UK population is about 61,000,000, with the figure for England and Wales being approximately 54,000,000. 51.4% of the population are female and 48.6% male. Thus there are about 26.25m males and 27.75m females in England and Wales.
6,860 deaths per million men and a population of 26.25m men equates to 180,075 male deaths in 2008 and likewise 4,910 deaths per million women with a population of 27.75m women equates to 136,250 female deaths. Thus these figures indicate total deaths in 2008 in England and Wales of 316,325, which is only 45% of the number of births and would mean an increase in the population of just under 400,000. It also compares with the 509,090 total deaths the article quotes.
Looked at another way, with 180,075 male deaths and 136,250 female per year the average life of a male would be 146 years and the average life of a female 204 years!
Now you might be thinking “what has this got to do with mortgages?” Well nothing really except that it clearly demonstrates a complete failure by whoever produced these statistics to do a sense check on them, thus proving yet again Mark Twain’s famous quote that there are lies, damn lies and statistics.
Perhaps whoever produced these statistics just couldn’t be bothered to do a basic sense check as 80%* of people don’t understand statistics. He/she may have remembered the quote from American comedian George Carlin “Think about how stupid the average person is; now realise half of them are dumber than that.”
Some of the one off housing and mortgage market statistics, as with statistics from other sectors, especially ones produced from surveys of the public, need to be treated with extreme caution, especially when the exact question asked is not stated. If a particular result is wanted it can easily be influenced by the way the question is asked. Regular monthly surveys will generally be more reliable, providing they are produced each month on a consistent basis and the reported figures are the real ones, or if they are doctored, i.e. seasonally adjusted, this is made clear.
Some seasonal adjustments are massive, but in the current environment are pure guesswork. It would not be as bad if seasonally adjusted figures were reported as that, but often they are not, mainly because the provider doesn’t highlight the fact adequately. One of the worst offenders is the Bank of England, with its mortgage figures. The only figures they provide in their monthly press releases are the seasonally adjusted ones, and the last 6 reported months (to March 09) the adjustments of the mortgage approval figures from the real figures are as follows: - 5% (Oct 08), + 11%, + 41%, + 54%, +12%, - 16%.
It is grossly misleading when these figures are reported as gospel and even the MPC member with by far the best track record in forecasting the scale of the current recession agrees. David Blanchflower told Newsnight "There are some difficulties in actually getting accurate data in a recession. It’s hard to seasonally adjust things and get the right data”
* I made that number up
Installment 9 of 10 from Sell The Truth: a Marketing Guide for Real Estate Developers in the New Economy. By David Allison.
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Confidence started returning to first time buyers (FTBs) at the beginning of this year according to the John Charcol Index, the new monthly mortgage activity monitor from John Charcol, the UK’s leading independent mortgage adviser. The index reveals a sharp increase in the proportion of purchases made by first time buyers in the first four months of this year, with that proportion being 31⁄2 times higher than in the previous 4 months. “The return of significantly more FTBs in to the market this year, despite the lack of high LTV mortgages, is one of the best indicators of confidence we’ve got at the moment. A surprising number of FTBs have managed to find deposits of at least 25% in order to access a wider choice of mortgages and get a cheaper deal. Many branches of The Bank of Mum and Dad have proved more robust than many of our High Street banks, haven’t needed a Government bail-out and recognise that providing their son or daughter with a sizable deposit is often a good way of utilising their savings,” comments Ray Boulger of John Charcol. Boulger continues, “Banks and building societies bemoan their ability to attract savings in the current low interest rate environment but their mortgage rates give them the best gross margins they have experienced for many a long year. With parents providing bigger than ever deposits for their FTB children, some families have found a way of cutting out part of the middle man’s turn!”Fixed rates now 82% of all lendingThe proportion of all applications for fixed rate mortgages (i.e. not just FTBs) continued to climb in the last month, from 80.9% in March to 82% of all business written by John Charcol in April. This number is over 70% higher than the proportion of fixed rate applications in January, when it stood at 47.8%.The John Charcol Mortgage Index is published monthly, tracking three important statistics, based on mortgage business written by John Charcol. The index is a leading indicator of trends being based on mortgage applications submitted to lenders, whereas figures reported by the Council of Mortgage Lenders (CML) and the Bank of England (BofE) are based on completions, which typically take place 2-3 months after the mortgage application is submitted. The three statistics tracked each month are the percentage split:• Between Fixed rates, Capped rates and Tracker/Discount rates*.• Between Purchases and Remortgages.• Of First Time Buyers compared to all Purchasers.
Installment 8 of 10 from Sell The Truth: a Marketing Guide for Real Estate Developers in the New Economy. By David Allison.
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The nominees:
(1) Honey I’m home
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Installment 7 of 10 from Sell The Truth: a Marketing Guide for Real Estate Developers in the New Economy. By David Allison.
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Installment 6 of 10 from Sell The Truth: a Marketing Guide for Real Estate Developers in the New Economy. By David Allison.
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At Tuesday’s FSA Conference Managing Director Jon Pain said that a lot of self certification mortgages lent by specialist lenders has led to large numbers of arrears and frauds. If the FSA failed to recognise “large numbers of … frauds” were being committed it says as much about their failure to regulate adequately as it does about the lenders’ success at fraud prevention.
Mr Pain said: "Some lenders, knowing they ultimately do not bear the financial risk of consumers' inability to pay, [have not worried] about affordability, either because they can sell on the mortgages by packaging them up and selling them on; or they believe they can rely on house prices to rise, [with] repossession ultimately providing a safety net - but not for the consumer."
This demonstrates very clearly the problems that can arise when lenders are allowed to securitize without any recourse for arrears and bad debts, although my understanding is that most securitisations did effectively have some element of recourse. The most obvious lesson from this is that when the securitisation markets return the originating lender must continue to be on the hook for a proportion of any ultimate loss.
Another clear message is that investors need to do proper due diligence in future before buying any mortgage backed securities and not take the lazy option of relying on potentially flawed analysis by one or more of the credit rating agencies, all of which have been discredited by even bigger failures than those made by the regulators. If investors had bothered to take the trouble to understand what they were being asked to buy most would not have bought into some US mortgage backed securities. That would have prevented some lenders from continuing to originate new mortgages and hence the current debacle would have at least been mitigated.
Lenders, rating agencies and regulators have rightly been criticised over the causes of the credit crunch but lets not forget the foolish investors, and in particular the Chief Executives of those companies, who didn’t have the expertise to understand what they were buying. They are equally culpable.
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