How bad is that property slump?

April 3, 2009

There are green shoots of recovery in the economy, according to this morning’s papers. The Daily Express (among others) reported figures from the nation’s mortgage lenders which appear to be bucking the slump that has “wiped 20 per cent off property values”.

Erm, since when? As my first year students know, a percentage change which doesn’t tell you over what period the change is measured, is meaningless. Presumably, the 20% decrease is being measured against the height of the property boom. If instead we had chosen a different base (say, the inflation-adjusted average over the past five years, or the average price from March 2006), we wouldn’t end with a figure as dramatic as that 20%.

Despite this provido, at first blush, the Express’s comparative seems quite informative. It tells us that since the peak of the property prices, home-owners have “lost” 20% of the capital value of their properties. But of course, this only equates to an actual cash loss if someone was unlucky enough to have purchased when the market was at its height and have been forced to sell when the slump was at its deepest – rather a select bunch of people.

Instead, for most of us, it was only ever a loss on paper. If our property loses value, it has little or no impact on those of us not engaged in buying or selling (well, OK, it will affect re-mortgaging – but again, this involves a fairly small number at any one time).

But even so, what the 20% loss doesn’t take into account is the tremendous increase in house prices up to that point. Anyone who bought property prior to 2000 will still be quids in.

It’s as though the Express chose its timescale to induce the maximum sense of anxiety among its readers. Surely that can’t have been deliberate? ….


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