Acadata

Wales

JULY 2015 House Price Index STRICTLY UNDER EMBARGO UNTIL 00.01 WEDNESDAY 23RD SEPTEMBER 2015

June decline reversed - prices rise by +0.4% or £710 this month  Prices in Gwynedd rise by 11.3% annually  Highest number of transactions in a July since 2007  has lowest annual change in house prices compared to the regions of England House Price Index Monthly Change % Annual Change % £163,389 250.2 0.4 2.1

Table 1. Average House Prices in Wales for the period July 2014 – July 2015 link to source Excel House Price Index Monthly Change % Annual Change %

July 2014 £159,985 245.3 0.0 5.0 August 2014 £162,239 248.5 1.4 5.7 September 2014 £162,809 248.9 0.4 4.7 October 2014 £164,547 251.2 1.1 4.8 November 2014 £164,022 251.0 -0.3 4.6 December 2014 £164,252 251.5 0.1 4.2 January 2015 £164,706 252.2 0.3 3.9 February 2015 £165,905 254.0 0.7 3.7 March 2015 £166,041 254.3 0.1 3.8 April 2015 £164,318 251.6 -1.0 2.9 May 2015 £163,404 250.2 -0.6 3.0 June 2015 £162,679 249.1 -0.4 1.7 July 2015 £163,389 250.2 0.4 2.1

Acadata Wales House Price Index – July 2015 1

Commentary by Dr Peter Williams

Dr Peter Williams, housing market specialist and Chairman of Acadata, comments:

This month saw a reversal of June’s downward monthly tick of -0.4% by recovering that ground, so that the seasonally- adjusted average price of a house in Wales was £163,389 in the month, an increase of £710 (+0.4%). This positive movement means that there have been falls in four of the last twelve months, and rises in eight. The average monthly change over that period was +0.2%. However, if we consider the six months August to January, that average was +0.5%, whereas for the last half year it fell to -0.1%.

On an annualised basis, prices have remained positive over the last year, ranging from a rise of +5.7% in August 2014 to the smallest change of +1.7% last month. The average of those changes over the twelve month period was +3.8%, but as with the monthly rate of change, the last six months average of +2.9% is less than the previous six months figure of +4.7%.

As well as prices, the number of transactions in Wales has also seen an increase this month, and we will look at this in more detail later. This increase may well have to do with the specifics of competitive lending rates available as well as the generally good prospects for the economy. We also look later at the relationship between price and transaction rates of change.

From Figure 1 below we can see the way in which, whilst the upward trend (black line) has been maintained over the last thirteen months, there have been significant monthly variations (in red). The period from July 2014 to October of that year saw only positive changes: after a fall in November, December onwards then saw the rise continue to its peak in March, thereafter falling to a low in June, followed by the uptick in July. For comparison’s sake, the July change in England & Wales as a whole was also +0.4%: however, the equivalent annualised rate for the country as a whole was +4.2% in that month, as opposed to the +2.1% for Wales alone. In addition, Scotland’s monthly rate was also +0.4% in July: however, there the annualised rate of change was -0.1%.

Average House Prices in Wales July 2014 - July 2015

£167,000

£165,000 Wales £163,000 12 month trend

£161,000

£159,000

Figure 1 Average house prices in Wales, July 2014 – July 2015 link to source Excel

When considering the rate of change in house prices in England & Wales as a whole, the effect of London and the South East remains an important consideration, and while the inflationary effect of London itself may have diminished somewhat over the last three months, the influence one way or another of both the capital as well as the South East generally needs to be considered. In this context, Figure 2 below indicates the past divergence and current convergence of prices both with and without London and the South East. There are indications now however that the decline in the rate of inflation in London may be near or at a bottom point, in which case the blue trace on the chart may well change direction once more.

We can also see the relative upwards movement of the prices in Wales compared to the rest of the country. It is interesting to note that although the overall picture over the past twelve months for all areas has been one of a rise and fall, the monthly fluctuations in Wales are more obvious - this volatility is something we have remarked on in the past, and will continue to monitor. We also look at the potential relationship between price and transactions at the end of this report.

Acadata Wales House Price Index – July 2015 2

Commentary by Dr Peter Williams

In July and at the upper end of the scale, the most expensive properties sold in Wales were one in Porthmadog at £1.5 million, one in Pontyclun at £1 million and one in Penarth, also at £1 million. Seven others were priced at over £700k. For comparison’s sake, the most expensive property sold in London in July was priced at £12.9 million (figures from Rightmove).

Annual House Price Growth Wales vs England & Wales inc/exc London and South East

12.0

10.0 E&W including 8.0 London & SE E&W excluding 6.0 London & SE 4.0 Wales 2.0

Annual % % Annualin change prices house 0.0 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15

Figure 2. Annual change in average house prices August 2013 - July 2015, Wales compared to E&W inc/exc London and South East link to source Excel

In the league of regional annual house price change over the last three months, as charted in Figure 3 below, Wales remains the region with the lowest rate at +2.1% (compared with +1.7% last month). The region at the top of the table for the second month running is East Anglia at +5.9%. Note that these changes are all positive, and it is necessary to go back to July 2013 to see negative change - which was in fact in Wales.

Summarising, the rate of annual house price growth this month compared to last has fallen in seven regions, with Wales being one of the only three regions with rises - the others being the North and the South West.

Average Annual Change Over Last Three Months

East Anglia 5.9% 6.3% East Midlands 5.8% 6.1% South East 5.8% 6.2% South West 5.6% 5.2% ENGLAND & WALES 4.2% 4.4% Yorks & Humber 3.6% This month 3.6% Last month West Midlands 3.5% 4.7% North West 2.6% 3.3% Greater London 2.5% 2.5% North 2.2% 1.5% Wales 2.1% 1.7% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Figure 3. Annual change in average house price by region link to source Excel

Acadata Wales House Price Index – July 2015 3

Commentary by Dr Peter Williams

One important aspect of the house-purchase process is affordability, a subject often not given enough consideration when looking at prices in any given market. Affordability is of course particularly important to the first time buyer, who may well be struggling to find enough cash for the initial deposit. For all that, research from the Principality Building Society suggests that many first time buyers think smartphones and a regular coffee shop fix are more important than getting on the housing ladder. This is a concern when the earnings/price ratio is increasing (up to around nine in England & Wales as a whole in popular areas with good schools for example - source FT/Lloyds Bank), and with many lenders capping loan-to-income multiples at around 4.5/5.0.

The result in effect makes house purchase unaffordable for the average single person - and particularly for the first time buyer. And depending on area, this can also exclude households with more than one earner. In addition, the current rate of house price inflation still outstrips that of wages, which exacerbates the problem. The importance of first time buyers generally can be gauged from recent CML (Council of Mortgage Lenders) figures, which show lending to the sector in England & Wales as a whole is up by +7% year-on-year, July 2014 to July 2015, equivalent to a loan value of £4.6 billion. This was the highest first time buyer lending by level and volume since August 2007. In Wales, Q2 lending to this sector was up +29% on Q1, although down by -6.1% when compared with Q2 2014. The typical loan size was £99k with a LTV ratio of 85%. For comparison, the reduction in the number of flat-purchase transactions (typical first time buyer territory) was -25% down in Wales comparing Q2 2015 to Q2 2014.

The prospect of a relatively early rise in interest rates must also be considered, which has caused a considerable surge in remortgage activity. Indeed, in Wales year-on-year remortgage activity is at its highest since Q4 2013. In England & Wales as a whole, the increase in the number of loans to this sector of the market was +34%.

Another factor which is not often considered is the cost of mobility in the housing market once a first step has been taken onto the housing ladder. A report by Experian shows that moving from a one-bedroom to a two-bedroom flat, or from a three-bedroom to a four-bedroom house, can be as expensive a buying a first property in almost all of the 276 towns studied across the UK. Indeed, is a hot-spot in this respect, particularly where larger homes are concerned. As an indication of this effect, if we take the price difference between a detached and a semi-detached property in Monmouthshire (as representative of Abergavenny) it currently amounts to £140k, which approximates to the current price of a flat in the area. Looking at the on-the-ground reports from the RICS members, we see new buyer enquiries as well as new vendor instructions up when compared with the three-month average. However, agreed sales are down, as are sales expectations. The number of sales/surveyor is reported as average, as is the number of stocks/surveyor. The sales/stock ratio is below average. Individual comment includes: “Confidence strong and market has held up through holiday months”, “… several excellent value properties available …”, “… market moving forward in low to middle sections, but higher-end properties stuck”. Turning to the seasonally-adjusted price changes by Principal Area over the last month, we can see from Table 2 below that there were 11 areas with monthly price falls (12 last month) and 11 with price rises (9 last month - one area saw no change in June). These changes varied from a high of +7.8% in Carmarthenshire to lows of -1.6% in both Blaenau Gwent and Merthyr Tydfil. Excluding the +7.8% change in Carmarthenshire and that of +4.4% in , all the other rises were at or less than +1.8%. Considered annually, prices rose in 16 areas (10 last month) and declined in 6 (12 in June). The largest rise was in Gwynedd at +11.3%, which was nearly double the increase in the area with the second highest rise, Flintshire at +5.9%. Cardiff, Denbighshire and Wrexham all saw rises at or above +5.0% (+5.2%, +5.7% and +5.0% respectively). The smallest annual increase was in Blaenau Gwent at +0.3%, with Powys, Ceredigion, and Caerphilly all also seeing rises of less than +1.0% (+0.9%, +0.4% and +0.6% respectively). The biggest annual fall was in Neath Port Talbot at -5.0%, followed by Newport at -2.4%, at -1.8%, Carmarthenshire at -1.2% and Pembrokeshire with -0.5%. There is a relatively consistent pattern - and not only in Wales - of properties in the higher priced areas seeing higher price inflation than those in the lower priced areas. That pattern continues, with the highest/lowest average comparison on a monthly basis being +0.6% vs +0.3%. Annually, the effect is more pronounced at +3.6% vs +0.1%. Whilst the average price of a house in Blaenau Gwent has risen by +0.3% over the twelve months, it still remains the only area in England & Wales where the price at £88,899 is below £100k (although it did reach £90,345 last month). The second lowest priced unitary authority area in England & Wales is the City of Kingston upon Hull, where the average property is priced at £107,154.

Acadata Wales House Price Index – July 2015 4

Commentary by Dr Peter Williams

Table 2. The average house price in Wales, by principal area; July 2014, June 2015 and July 2015 link to source Excel RANK BY PRICE RANK BY Monthly % Annual % PRIOR YR PRICE PRINCIPAL AREA Jul-14 Jun-15 Jul-15 Change Change 1 1 MONMOUTHSHIRE 238,089 238,956 241,846 1.2% 1.6% 2 2 THE VALE OF GLAMORGAN 216,435 224,080 222,763 -0.6% 2.9% 3 3 CARDIFF 194,053 204,763 204,088 -0.3% 5.2% 5 4 POWYS 178,039 180,356 179,702 -0.4% 0.9% 4 5 CEREDIGION 178,333 180,283 178,989 -0.7% 0.4% 6 6 PEMBROKESHIRE 176,870 168,665 176,066 4.4% -0.5% 9 7 ISLE OF ANGLESEY 163,601 168,331 171,163 1.7% 4.6% 10 8 FLINTSHIRE 160,449 172,052 169,991 -1.2% 5.9% 12 9 GWYNEDD 152,106 167,980 169,277 0.8% 11.3% 7 10 CONWY 166,606 167,778 169,032 0.7% 1.5% 13 11 DENBIGHSHIRE 151,753 158,365 160,342 1.2% 5.7% 8 12 NEWPORT 163,682 158,943 159,674 0.5% -2.4% 14 13 WREXHAM 151,349 156,002 158,872 1.8% 5.0% 11 14 SWANSEA 155,135 154,775 152,399 -1.5% -1.8% 16 15 BRIDGEND 143,072 147,704 146,059 -1.1% 2.1% 15 16 CARMARTHENSHIRE 146,132 133,875 144,313 7.8% -1.2% 17 17 TORFAEN 142,629 141,667 142,176 0.4% -0.3% 18 18 CAERPHILLY 130,565 132,010 131,402 -0.5% 0.6% 20 19 RHONDDA CYNON TAFF 112,139 113,697 114,239 0.5% 1.9% 19 20 NEATH PORT TALBOT 118,400 114,225 112,525 -1.5% -5.0% 21 21 MERTHYR TYDFIL 104,520 107,903 106,195 -1.6% 1.6% 22 22 BLAENAU GWENT 88,640 90,345 88,899 -1.6% 0.3% WALES 159,985 162,679 163,389 0.4% 2.1%

Looking at transactions, there were an estimated 4,225 sales for the month of July. Last month, the total was 3,675, so there has been an increase of 550 this month, or +15%. This is the highest total since October 2014, and is the highest July figure since 2007 (when it stood at 5,551). Year-to-date, there have been 22,706 transactions in Wales, compared to 23,684 over the same period in 2014 and 34,420 in the first seven months of 2007. The monthly average so far this year now stands at 3,244, which is -4.1% down on the 3,383 monthly average January to July 2014. However, there have only been two months so far this year where the number of transactions exceeded that in the same month of 2014 (March and July).

In Figure 4 below we can see the progress of transactions in Wales this year to date, relative to the past three years, as well as to 2007. It will be interesting to see whether or not the black trace on the chart - showing this year - will now continue above that for 2014.

Acadata Wales House Price Index – July 2015 5

Commentary by Dr Peter Williams

Housing Transactions/Month 2007 + 2012/13/14/15

7,000

6,000

5,000 2007 4,000 2012

3,000 2013 2014 2,000

2015 Number of sales Numbersales of per month 1,000

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Figure 4. The number of housing transactions by month in Wales, 2007 + 2012/13/14/15 (not seasonally adjusted) link to source Excel

Considering the change in transaction numbers over the last twelve months, Figure 5 below shows that the number has risen in four areas: in Pembrokeshire by +0.1%, in Gwynedd by +0.9%, in Bridgend by +3.1% and in Rhondda Cynon Taff by +4.3%. The number of transactions fell in all the other areas, with the biggest decline being in Ceredigion at -17.4%. Conwy, Isle of Anglesey, Cardiff, Swansea, Wrexham and Caerphilly all saw falls of more than -10% (-15%, -14%, -14%. -13%, -12%, -12% respectively). Other falls ranged from -9% in Torfaen to -3% in Blaenau Gwent (note - figures rounded). Number of Transactions Wales by Principal Area Years 2014/2015 to month July 3,500

3,000

2,500

2,000

1,500 2014 2015 Number of Transactions of Number 1,000

500

0

Figure 5 Transactions Year-to-date 2015 and same period 2014 in Wales by Principal Area link to source Excel

On a month-to-month basis, the area with the largest increase in transaction numbers June-to-July was Cardiff where there were 164 more sales (+42%). Of these, the largest proportion was terraced properties with 37%, followed by semi-detached at 23%, flats at 22% and detached at 18%. The largest reduction in transaction numbers from last month was in Flintshire at -24%, or 51 actual fewer sales. Here, the biggest fall was in semi-detached properties at -12%. Overall, 10 areas saw a fall over the month in the number of properties sold, one area saw no change, and 11 saw a rise. The average rise was +18%, and the average fall -11%. We have referred before to the relative volatility of prices in Wales - might there be a relationship between prices and transaction numbers, and if so, is one or another causal to any degree, or derivative? Figure 6 below plots the rate of change in annual price since 2008 against the rate of change in transaction numbers (and note that % price change has been magnified by a factor of 10 for clarity’s sake). A roughly inverse relationship between these two measures is indeed discernable, suggesting that as the rate at which either price or transaction changes, so the rate of change of the other measure moves in the opposite direction. Might this imply a result or a cause? Acadata Wales House Price Index – July 2015 6

Commentary by Dr Peter Williams

Rate of change transactions v prices 50 40 30 20 10 0 Transactions -10 -20 Prices -30

Rate of change (price change (price of Rate 10) x -40 % % -50 -60 2008 2009 2010 2011 2012 2013 2014 2015 Figure 6 Rate of change of transactions compared to rate of change in price 2008 to date link to source Excel

NOTES

1. Acad Wales HPI is a price series as opposed to a value series and is the only house price index for Wales to use:  the actual prices at which every residential property in Wales was transacted, including prices for properties bought with cash, using the data provided by the Land Registry as opposed to valuation estimates or asking prices  the price of every single relevant transaction, as opposed to prices based upon samples 2. the current month Acad Wales HPI is not forecast, unlike the LSL Acad E&W HPI, and the first release of the Wales results lag the first release of those for England & Wales by one month 3. whilst the Acad Wales HPI, like the LSL Acad E&W HPI, comprises a smoothed average of three months’ prices, the Acad Wales HPI average reflects the average price at the month of the index and the prior two months’ prices and is ascribed to the month of the index i.e. it is “end month smoothed” (ems) and not “centre month smoothed” (cms) as applied to the LSL Acad E&W HPI. Since we provide only a national England & Wales average price in our current month LSL Acad E&W HPI and prices at region and lower levels are lagged one month, this procedure means that the Acad Wales HPI prices are contemporaneous with the prices published for the equivalent month for England & Wales, Wales and the regions. 4. Acadata is an independent privately owned consultancy working with Dr Stephen Satchell, Economics Fellow Trinity College Cambridge, and specialises in the assessment of risk in property and mortgage portfolios.

Acadata Wales House Price Index – July 2015 7

Comparison of indices

9.0 8.0 Acad Wales 7.0

6.0 ONS 5.0 4.0 Land Registry 3.0 Wales

Percentage 2.0 Nationwide 1.0 0.0 Halifax -1.0 -2.0 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15

Figure 7. ANNUAL CHANGE IN HOUSE PRICES - COMPARISON OF INDICES link to source Excel

4.0 Acad Wales 3.0

2.0 ONS

1.0 Land Registry Wales

0.0 Percentage Nationwide -1.0

-2.0 Halifax

-3.0 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15

Figure 8. MONTHLY CHANGE IN HOUSE PRICES - COMPARISON OF INDICES link to source Excel

The above charts compare the main indices published for Wales. It should be noted that Halifax and Nationwide provide prices for the Welsh market only on a quarterly basis and we have charted these by interpolating on a straight line basis.

Acadata Wales House Price Index – July 2015 8

Comparisons with Wales

Average House Price £300,000 England & Wales £250,000 North West £200,000 West Midlands £150,000 Wales £100,000 South West £50,000 Scotland £0

Figure 9. Wales house prices, compared with England & Wales, Scotland and regions bordering Wales for the period January 2005 – June 2015 link to source Excel

Annual % change in average house prices 25.0 20.0 England & Wales

15.0 North West 10.0 5.0 West Midlands

0.0 Wales -5.0 -10.0 South West -15.0 Scotland -20.0

Figure 10 comparison of the annual change in house prices in Wales, England & Wales, Scotland and regions bordering Wales for the period January 2005 – June 2015 link to source Excel

Acadata Wales House Price Index – July 2015 9

Nine principal areas in Wales

Vale of Glamorgan Nine Principal Areas in Wales Cardiff 260,000 Powys 240,000 220,000 Flintshire 200,000 Wrexham 180,000

160,000 Swansea Average Average Price House 140,000 Carmarthenshire 120,000 Caerphilly 100,000 Rhondda Cynon Taf

Figure 11. Average house prices for nine principal areas in Wales from May 2014 – July 2015 link to source Excel

Nine Principal Areas in Wales

Vale of Glamorgan £222,763 Cardiff £204,088 Powys £179,702 Flintshire £169,991 Wrexham £158,872 Swansea £152,399 Carmarthenshire £144,313 Caerphilly £131,402 Rhondda Cynon Taf £114,239

£0 £50,000 £100,000 £150,000 £200,000 £250,000

Figure 12. Average house prices for nine principal areas in Wales July 2015 link to source Excel

Acadata Wales House Price Index – July 2015 10

Footnotes on data and methodology

1. Acad Wales HPI is derived from Land Registry (LR) house price data, seasonally and mix adjusted by property type. © Crown copyright material reproduced with the permission of the Land Registry. The prices are smoothed to show underlying trends. Acad Wales HPI includes cash purchase prices and is the only index based upon the complete, factual, house price data for Wales, as opposed to a sample. 2. Most indices employ data available to the provider as a result of its business; index methodologies are designed to exploit the advantages and overcome the disadvantages of each particular dataset; a valuation series (whether the values are professionally estimated at e.g. time of mortgage offer or by an estate agent) is not the same as a price series; a price series, such as Acad Wales HPI or ONS HPI, can be prepared only when the prices at which properties have been transacted have been recorded at LR (Acad Wales HPI) or when firm prices at mortgage completion have been made available by lenders (ONS HPI); valuation series can be prepared whenever the data e.g. asking or mortgage offer prices are available to the provider; publicity accrues to those indices which are released first; indices published at or before month end are likely to employ data for the current and prior months. LSL Acad E&W HPI overcomes delay in the availability of all transactions for any given month from LR with an “index of indices” forecasting model, purpose developed by Dr Stephen Satchell Economics Fellow Trinity College Cambridge and Dr George Christodoulakis, then at the Sir John Cass Business School. Forecasting is assisted by the provision by LR of “emergent data”, being those current month transactions for which LR have received prompt notification. 3. The “emergent” data for Wales necessary to repeat the E&W forecasting methodology have not been employed, such that Acad Wales HPI incorporates no forecasting procedure. Whilst the Acad Wales HPI, like the LSL Acad E&W HPI, comprises a smoothed average of three months’ prices, the Acad Wales HPI average reflects prices at the month of the index and those for the prior two months and is ascribed to the month of the index i.e. the prices are “end month smoothed” (ems) and not “centre month smoothed” (cms) as applicable to the LSL Acad E&W HPI. Please note that:  we provide only a current month average price for England & Wales as a whole, in our LSL Acad E&W HPI, and that prices at region and lower levels are lagged one month  LR monthly data comprise nationally some 88% of the transaction for the current month and c.96% for the prior month Hence, a smoothed average price using three months data ascribed to the index month (ems) for Acad Wales HPI provides the equivalent price, to all intents and purposes, to the centre month smoothed (cms) price at region/county level, lagged by one month, provided by LSL Acad E&W HPI. Hence, an ems procedure allows the Wales prices to be placed alongside the contemporaneous prices for E&W as a whole and for Wales, as a whole, and those for the E&W regions for comparison purposes. 4. Like LSL Acad E&W HPI, Acad Wales HPI provides prices from January 2000. The underlying data by property type for months when no sales of a particular property type were reported in a specific area, were in-filled using the same procedure used in LSL Acad E&W and, by Eurostat, in preparing seasonal data. 5. Acad Wales HPI is unable to identify different prices according to e.g. numbers of bedrooms; the lender hedonic indices and the ONS mix adjusted HPI do so. LR data exclude commercial and thus auction sales, and do not reflect repossession prices on the grounds that such prices do not reflect those between a willing buyer and a willing seller. 6. Acad Wales HPI is prepared from LR data using a methodology designed to provide a “true measure of house price inflation”. Acadata does not guarantee the accuracy of the Acad Wales HPI results and Acadata shall not be liable for any loss or damage whatsoever, consequential upon any error, incorrect description of or inadequacy in the data; persons using the data do so entirely at their own risk; Acad Wales HPI is freely provided for publication with due attribution to Acadata. Permission is required for any commercial use of the data. 7. The monthly, smoothed, average LR prices at county and unitary authority level provided by property type, which underlie Acad Wales HPI, together with historic data, can be purchased from Acadata. 8. LSL Acad E&W HPI was published under the name FTHPI from September 2003 until December 2009. Until the October 2013 LSL Acad E&W HPI was published, it was prepared by Acadametrics as was the Acad Wales HPI. Acadametrics has now changed its name to Acadata to reflect a focus entirely upon house price indices and data following its agreement to sell its 50% holding in MIAC Acadametrics to MIAC Analytics over a 4 year period.

[email protected] © Acadata Limited

Acadata Wales House Price Index – July 2015 11