Auctions – A Barometer For The Property Market?

Most of us would like to be able to forecast the property market accurately. To be able to forecast when prices are likely to rise or, perhaps, be forewarned of a crash before it happens. It’s not that easy in practice of course.

However, it could be said that auctions are the best possible barometer for the property market.

Auctions, the most up to date indicator of property prices

Here’s why: Auction results give a pretty good indication of the temperature of the property market on the day of the sale.

Compare auction results with the various indices of property prices. Although they are widely trusted they are invariably out of date by several weeks or months.

For example, the official UK House Price Index or UK HPI published this month (October) was calculated from sales registered at HM Land Registry in August. Those prices could have been agreed been two and six months before, ie. in June or February. Market conditions in October are not the same as in February.

The Rightmove House Price Index bases itself on a monthly sample of residential property asking prices. But asking prices are often quite different from selling prices. Selling prices are usually less but can potentially be more.

The Nationwide Building Society’s House Price Index uses what they describe as mix-adjusted figures from their mortgage lending on owner-occupied homes. But not everybody takes a mortgage with Nationwide, or even buys with a mortgage at all.

All these organisations explain how they calculate their data together with what its limitations are by the way. However, they are frequently quoted in the mainstream media as representing what prices are right now, when that is not necessarily the case.

What you can learn from auction results

Property auctions, on the other hand, give a much more up to date indication of the state of the property market.

  • Auctions indicate whether sellers want to sell, and what sort of property they are looking to sell;
  • Auctions indicate how keen buyers are to buy, and what sort of property they are interested in buying;
  • Guide prices alone can give some indication of the softness or firmness of the market;
  • Lots listed and lots actually sold provide valuable information on the actual state of the market;
  • Auction prices obtained indicate the prices which sellers are prepared to sell for. And the prices at which buyers are prepared to buy at – and able to buy at.

All this information represents the state of the market on the day, not some weeks or months ago.

Better still, this actual price data is publicly available and easy to access before the various price indices are made available. You can visit auctions or monitor them online for an instant market snapshot. The vast majority of auction houses publish their sale results very quickly after the sale, sometimes next day. There are also services which collate and provide analysis of nationwide auction results too, such as that provided by Essential Information Group.

Auctions – A Barometer For The Property Market?

Thoughts from the experts

The idea that property auctions are a barometer of the property market is good in theory. But what do those in the auctions business think?

David Sandeman of Essential Information Group says that auctions are a key indicator of the state of the property market both by way of the properties that do not sell as well as those that do. He says: “The auctions are the barometer because, being an open forum, all can see what properties are selling for and what remains unsold.”

He adds that the Internet age has added another dimension: “Additionally in this digital age it is very easy for the reserve to be reduced by the vendor and auctioneer, to make the property more attractive to get it away.”

Toby Limbrick, Director, at Network Auctions agrees with this theory. He says: “Without question property auctions are a barometer for the state of the market.

“As ‘live’ public events, conducted in the room or online, bidders and anyone who’s interested can see in real time if properties sell and for how much.”

He adds that as the auctions market is principally a ‘trade’ market auction results offer a truer picture than the movement of the market generally. He explains: “Auctions attract all types of buyers but, fundamentally, the core of our market is professional investors and developers. They’re buying with the head, not the heart and their sentiment is the ultimate indication of which way the market’s heading.”