A market of a few dozen houses
The phrase 'the housing market' suggests something the size of a country. In practice the market a household faces is a few dozen houses: the ones for sale, in the area they can reach, at the size they need, within the money they have. That is a very small market, and small markets are lumpy. One unusual sale can move the apparent average. Two families wanting the same street can move the price of that street.
This is the first thing to hold on to. National figures describe the weather. The thing you are standing in is the local flow: which houses came up for sale in the last eight weeks, and who is currently looking at them.
Stock changes slowly, flow changes fast
The stock of houses in a town is close to fixed over any period a household cares about. New construction adds a small fraction each year, demolition removes less, and conversions shuffle the edges. Even a building boom takes years to change the character of supply, because building requires land, permission, finance, materials and labour lining up at the same time. Housing supply responds in years.
Demand does not. A change in borrowing costs, a large employer opening or closing, a new commuting road, a school catchment redrawn, or simply a season, can change the number of active buyers within months. That mismatch of speeds is the engine of almost everything else. When fast demand meets slow supply, prices adjust because quantities cannot.
Why listings dry up in a rising market
A rising market is usually described as short of supply, which sounds like a shortage of houses. Usually it is a shortage of listings, and the two are different. Most sellers are also buyers. If they cannot see what they would move into, they do not list. Their not listing removes a house from the flow, which makes the shortage worse for the next person, who also then does not list. Confidence is therefore self-reinforcing in both directions: the same houses exist in a hot market and a cold one, but far fewer of them are available.
Chains and the arithmetic of dependence
Very few moves are independent. A typical sale is one link in a sequence: someone selling to buy, whose buyer is also selling, and so on down to a first-time buyer or an investor at one end and someone leaving the market at the other. Each link adds a point of failure, and the probability of the whole chain completing falls quickly as it lengthens. This is why purchases that look identical on paper can take six weeks or six months, and why buyers with nothing to sell are treated as worth money even when their offer is lower.
One map, several markets
A town is not one market but several sitting on the same map, and they can move in different directions in the same year. Small starter houses answer to first-time buyer credit and rents. Family houses answer to schools, space and the cost of trading up. Older large houses answer to renovation costs and to the taste of the moment. Rural properties answer to fuel prices and to how many people can work from home.
When a report says prices in an area rose four per cent, it has averaged those separate markets. The average can be true while no individual segment did anything like it.
What this means when you look at a number
- Ask which segment the figure describes, and over what period.
- Ask how many sales it is built on. A small area produces small samples and noisy averages.
- Ask whether it is asking prices, agreed prices or completed prices; they lag each other by weeks or months and can point different ways at a turning point.
- Ask what the mix was. If a quarter's sales happened to include several large houses, the average rises without any individual house being worth more.
None of that makes the numbers useless. It makes them a summary of a lot of local facts, and the local facts are where the explanation lives.