Average Price Comparables Are Pointless

What’s An Average House Price?

Yesterday i was having a sparring match on Twitter with the folks over at  Zoopla regarding some figures on their site which were re-quoted by CityWire financial web site.

We were in disagreement about my old favourite “Average House Prices”.  ( Yes, that old chestnut.)

They were stating that in a large percentage of the UK its now cheaper to buy than to rent.

The article quoted said this:

So where are the areas where it is more expensive to rent than to buy? According to Zoopla, which looked at asking prices and rental values of two bedroom flats, even in London, which has the highest rents in the country, buying is still the more cost-effective option. Average rents on two-bed flats are currently at £2,155 a month while average asking prices are an eye-watering £446,345. But mortgage repayments at 5%  are lower at £1,859 a month.

And this utterly meaningless statement

The cost of financing a 100% mortgage (though you can’t get one) on an £88,263 flat at 5% works out at only £367 – some £163 a month less than the average rent earned.

Lets look at the first part above. London prices for buying vary wildly from one borough to the next. As such there is no ‘average price’ in London. Sales figures were taken from all over London which is why the distorted figure of £446k comes out so high. If you remember back to school days …. an average ( or- mean) figure is achieved at by adding all high and low together and dividing by the number of figures in the calculation.

A more accurate way of comparing would be a borough by borough price list. ( but that’s a lot of work- right?)

So if you have 20 house sales ranging from £2 million to £100,000 the average will come out somewhere in the middle of it all. But what’s the point of that? Its utterly nonsensical.

Now, on to the second part. The cost of financing a £100% mortgage! Followed up by “though you cant get one!”

This is LAZY journalism at it’s best. Why are they ( Citywire) even comparing figures on an unobtainable mortgage? Its plainly the most ridiculous statement I’ve ever read. The folks at CityWire should know better than to allow this tosh onto their site. This kind of writing and quoting in mass media is why vendors get so confused, because they are continually fed figures which are total tosh. ( And of course it’s on telly or in the newspaper so it must be right, huh?)

If they really wanted to compare this type of buying versus rental, then they should have used true mortgage/ rental costs with actual examples. Not some blanket statement of one size fits all.

Moral of the tale? take all indices with a large pinch of salt. At best they are only a vague guide and a bit of light amusement.

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