Why It Matters Sold Prices
Summary
We are measuring the average price and median price at which properties in all postcodes have been sold in a given year, further broken down by property type (flats and apartments, detached properties, semi-detached properties, and terraced properties).
Interpretation
| Dataset | Explanation |
|---|---|
| Number of properties sold in your postcode | This is the total number of all properties sold in your postcode over the course of a year. |
| Location Quotient of properties sold in your postcode within the borough | Location quotient is an index for comparing a region’s share of a particular activity (in this case property sales) with the share of that activity found accross a larger area. If Location Quotient is more than 1 this indicates a relatively high number of sales in the postcode compared to other postcodes in the Borough. If Location Quotient is less than 1 this indicates a relatively low number of sales in the postcode compared to other postcodes in the Borough. |
| Average Sale Price for a Flat, Apartment or Maisonette | This is the average (mean) price of flats, apartments and maisonettes sold in your postcode over the course of a year. |
| Median Sale Price for a Flat, Apartment or Maisonette | This is the median price of flats, apartments and maisonettes sold in your postcode over the course of a year. |
| Average Sale Price for a Terraced Property | This is the average (mean) price of a Terraced Property sold in your postcode over the course of a year. |
| Median Sale Price for a Terraced Property | This is the median price for a Terraced Property sold in your postcode over the course of a year. |
| Average Sale Price for a Semi-Detached Property | This is the average (mean) price of a Semi-Detached Property sold in your postcode over the course of a year. |
| Median Sale Price for a Semi-Detached Property | This is the median price for a Semi-Detached Property sold in your postcode over the course of a year. |
| Average Sale Price for a Detached Property | This is the average (mean) price of a Detached Property sold in your postcode over the course of a year. |
| Median Sale Price for a Detached Property | This is the median price for a Detached Property sold in your postcode over the course of a year. |
Why the metric matters from a commercial inhabitant’s perspective
Average house price information will give commercial residents a good idea of the amount of purchasing power people who live in the area are likely to have, especially when considered together with income information. It will also be useful for those investing or developing in the area, as current average prices allow for more granular estimation of likely returns.
Why the metric matters from a residential inhabitant’s perspective
On the face of it, sold prices gives you a rough and ready idea of the price that people are paying for different types of houses.
However, we would advise that it be used with caution. The average price of a house or flat (as actually realised with evidence of a transaction) is what we call the “unconditional mean/median”. Whilst such prices are not conditioned on any knowledge other than the observation of prices and are computed without knowing anything about size or any other characteristics of the properties sold, the Law of Large Numbers, means that over time more transactions will be closer to the average value than not.
Lastly one important thing to note is that occasionally, because a property is not traded in every postcode in every quarter, average sold prices, can on rare occasion, be misrepresented as abnormally high or low caused by an unduly inflated or deflated prices.
(Photograph: developer-update.co.uk)
General commentary
The utility of average sold prices has historically been championed by those who define market value as the most probable price a property will achieve, and questioned by those who define market value as the highest price a property can achieve.
While there is no consensus between the camps, as a most simple valuation methodology, irrespective of the the extent to which it as a valuation method deviates from the true or correct value, average sold prices has remained a common reference point against which to benchmark local valuations.
By convention, to be deemed accurate, a valuation should lie within 10 % either side of a true value. Furthermore, valuation variance, that is the measure of the precision a number of independent valuations of the same property, should also not be great.
As average local prices cannot overcome sometimes great valuation variance and cannot promise complete accuracy, we have, in line with a good body of scholarly evidence, have found that they are most useful where a locale exhibits a high level of homogeneity of property types and the number of comparable transactions is also high.
History
House prices in Britain have tended to move in a cyclical fashion during the last 40 years with a series of quite distinct booms and one major bust. The booms periods were 1970–72, 1978–79, 1986-89, and the latest 10-year boom from 1996-2007, with a five-year house price slump from 1990–95.
One of the key characteristics of booms since the early 1970s is that they are normally led by price inflation in London and the South East, particularly in the expensive central London boroughs, where supply is limited and both demand and ability to pay are high. This phenomenon has become more marked in the last two booms with the growth of the City of London and the high salaries and bonuses paid in the financial sector.
City of London demand has led to very strong demand for properties at the top end of the market, which has been intensified by a growing number of wealthy overseas buyers. Midway through 2018 it was estimated that overseas buyers comprised over one-third of all buyers for property over £2 million.
House prices in London have always been much higher than in the rest of Britain. Even in the late 1960s, before the first major house price boom, average house prices in London were approximately 50 per cent higher than the UK average. The difference has been maintained in succeeding decades, although the size of the gap has fluctuated. The average property price in Greater London in the period April-June 1995 was just under £96 000 compared to £60 000 in England and Wales.
By September 2006 the London average was £317 000 compared to £199 000 for England and Wales. The percentage increases were identical at circa 231 per cent, which clearly refutes the idea that prices in London consistently rise faster than the rest of the country. Although the gap between average prices in London and average prices in England and Wales widened just after the turn of millennium from 1.6:1 in 1995 to a peak of 1.82 in 2001 because of an average price increase of 34 per cent in London in 1999–2000, prices in England and Wales have now caught up, and the ratio is roughly back to the level it was in 1995.