No one wants to be average

Looking at sale prices over time 7 Minute Read

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Very few people would consider being called average a compliment. It certainly isn’t a message you see emblazoned on many greeting cards.

An average is a number expressing the central or typical value in a data set, and despite all the leading property websites using them to explain their take on current valuations, we believe a misplaced overdependence on high-level averages has developed. Let’s be clear, we aren’t saying that averages have zero utility - they remain a useful tool for understanding the direction and magnitude of any market-related movement assuming all other factors remain the same. But therein lies the problem. With something as complicated as the London property market, how often do all other factors remain the same? London certainly is not a patchwork of identical properties with access to identical services. No property is a carbon copy of another and specific characteristics can, and do, have a significant impact on their valuation.

What really goes into an average?

A quick google search returns lots of results for average flat values. On the 22 August 2019, one of those results was placing the average value of a flat in N1 at £602,488. The only other piece of information given with this average was that it was based on a flat with 1.9 bedrooms. Even if you’re willing to gloss over the ever so slightly incomplete second bedroom, it does get you thinking. What other characteristics does this ‘average’ flat have? How many sqft is it? Does it have a balcony? What condition is it in? These are things that buyers and renters really want, and need, to know about when choosing their next home. Unfortunately, they are currently largely written out of the story by these generic average price valuations.

The Bricks&Logic Index is born

To our minds, being able to quickly find out the average price for a one bedroom 600sqft flat with a small terrace in good condition is infinitely more useful than knowing the valuation for an average 1.9 bedroom flat. So we devised a tool that gives home-hunters genuine control over the property and locality characteristics being compared. Using a whole host of smart data science and mathematical modeling techniques, we transformed all of the available data into outputs that allow you to compare apples with apples.

We can convert every property in every area into the same characteristics to ensure that our ‘average’, the Bricks and Logic Property index is truly representative of the market in each area.

You can now compare 1 bedroom garden flats in Greenwich with 1 bedroom garden flats in Cricklewood from the comfort of your very own armchair.

Our take on things

On 22 August 2019, the Bricks&Logic Property Index valued a 2 bedroom period flat of 700sqft in reasonable condition with no outside space in N1 at £620,000. The graph shown in figure 1.1. compares that specific N1 price estimate (indicated by the blue line) to the same type of 2 bedroom 700sqft period flat across all of London (indicated by the orange line) since 2007. Figure 1.2 illustrates the variation in value for the same type of flat across N1: the lowest valuation is £425,000, which you will find in the cheapest areas of that postcode district, but the highest valuation rises to a maximum of £1million in the most expensive areas.

Figure 1.1Figure 1.2

How do we do this?

By deploying various statistical techniques we’re able to get a solid grasp of both the value of particular locations and property characteristics (size, type etc). This allows us to understand the drivers of property prices. We can then turn this process on its head and deconstruct sale prices to get a true representation of how they are changing over time. This way of doing things is far more accurate than simply working out the average of recorded Land Registry sale prices.

Two lines, two very different stories

Figure 2 shows how the Bricks&Logic Property Index for all types of flats in N1 (indicated by the blue line) compares to the average sale price per quarter for all flats as recorded in Land Registry data (indicated by the blue line).

Figure 2

If you only look at the orange line (Land Registry average), it suggests that prices increased by over 25% in the year between the end of 2017 and end of 2018. However, our analysis (blue line) paints a rather different picture. Since the end of Q4 2017, it shows an underlying trend of fairly static prices. In fact, at times, prices even dropped slightly during this period.

When we first saw this disparity, we put it down to one of two things. One, more flats in the expensive parts of N1, which typically attract higher prices, were sold. Or two, a greater number of larger flats, which again demand a price premium, were sold. Either of these factors, in isolation or in combination, would be enough to skew the data…so much so that someone could believe their flat in N1 was worth 25-30% more than it actually was. If that flat owner was considering moving up the property ladder, they would very likely inflate their budget by that same percentage. Downgrading their search criteria once the realisation hit would be a pretty bitter pill to chew.

The devil is definitely in the detail

It transpires that the reason behind the huge Land Registry average price increase was that three luxury new-build blocks sold the majority of their flats in the second half of 2018. As well as being on the luxury end of the spectrum, many were also much larger than an average N1 flat. If you look at figure 3 below, you will see that over the previous two years, the average percentage of flats selling for over £1m in N1 was 7%. That figure jumped to 17% in Q4 2018.

Figure 3

It’s not all onwards and upwards

Being able to oscillate between micro and macro-level analysis has also allowed us to make some very interesting observations about how valuations have changed over time. Property price movement differs a lot depending on where you are in London. Recovery from the 2008 recession was experienced very strongly in the more expensive areas of London (e.g. Kensington, Chelsea, Mayfair). However, by the end of 2013, the market in these areas started to cool. Conversely, from 2013 onwards, the cheaper areas of London (e.g. Sidcup and Grove Park) started to dramatically increase in price. And whilst we haven’t seen significant price rises anywhere across the capital for the last couple of years, the expensive areas have actually seen a marked downturn since changes to stamp duty rates were introduced in April 2016 and Brexit started dominating news headlines from June of that same year.

Figure 4

To sum it all up

We aren’t the only people using these sorts of data techniques, but we’re the only ones publishing information like this at a micro-level. And we believe that when it comes to finding your next home, this level of nitty-gritty detail is invaluable. It means your expectations aren’t thrown off-kilter by averages generated from different property types and it allows you to search for direct comparisons rather than vague resemblances. You won’t have to take a stab in the dark anymore about how much having an extra bedroom in E10 will add to the price - the Bricks&Logic Property Index was designed to do exactly that.

If you would like to receive an instant, realistic, fair valuation of your property, try our app.