Every month, the Royal Institution of Chartered Surveyors (RICS) asks its members whether house prices were up or down in their neck of the woods. It takes the percentage number who said up, subtracts from this the percentage number who said down, and voila, out the other end comes the RICS index.
And as we have said many times before, it has proven to be a good omen for signposting the way forward. In the past when it has fallen, other indices, from the Nationwide and Halifax, for example, have fallen in the months after. When, in the spring of 2005 it surprised everyone when it started to improve, other indices did indeed confirm a recovery, but only months later.
Yesterday the RICS index fell to the lowest level in 15 years. In fact, the index fell to minus 49.1. That’s the lowest level since November 1992.
RICS also recorded a rise in new instructions to sell properties, and the number of unsold properties on estate agents’ books rose by 7.1 per cent in November, from 9.1 per cent the month before.
The bad news pile got even higher, with the news that RICS has also recorded that the index for measuring the percentage who expect house prices to fall over the next few months rose to minus 62, that’s the lowest level since RICS has been tracking this data, which was in 1998.
So it all seems pretty grim then.
But here is the puzzle. Apparently it’s not as bad as it seems. Ian Perry, a RICS spokesman, said: “While sentiment seems to have reached its lowest ebb, the underlying economic conditions are vastly different to what the country experienced in the early 1990s…Supply would have to loosen considerably before prices experience a significant dip,” he said.
The FT had Simon Rubinsohn, chief economist at RICS, saying the slowing pace of decline in new-buyer enquiries had been even looser in 2005 without prices falling on an annual basis.
Now, before we say what we think, and by the way, you’d better get the swearbox ready, because it won’t be pretty, here’s a caveat.
Thirty months ago, when RICS said the market was set to pick up, we were somewhat incredulous, but our cynicism was proven to be wrong.
But this time around, it is hard to say anything other than this: in its optimism, RICS might be striking a charming note, but it’s the wrong note, it jars with reason.
At the moment, the comparison with 2004/2005 is unclear. During the last decline, the RICS index fell for four months in succession before it posted a one-month pick up, followed by a few months of the index running along the bottom. This time around, it has fallen for five months in a row. So we will have to wait and see what news next month brings before we can start drawing conclusions.
But, with house prices still completely unaffordable for most would-be first time buyers, with buy-to-let investing looking decidedly high risk, it is difficult to envisage a pick up like the one we saw in 2005.
RICS says that falling interest rates will make it more attractive to buy properties again, but isn’t that missing the point. Interest rates are falling because things are dire. In any case, wage inflation remains lower than High Street inflation measured by the Retail Price Index. The cost of petrol is going though the roof, utility bills are expected to rise, 1.2 million people are set to come off fixed-rate mortgages, and some of them, at least, will hit the brick wall that is the credit crunch.
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