Is there really a correlation between the seasonality of the natural world and the man made world of rental property?

 

Is there any truth to the natural world’s seasonality affecting the transaction and prices of property in the UK and Brent?

There is a wealth of empirical and theoretical literature that has been inspired by the cyclical boom-to-bust activities of the regional and national housing markets. Booms are characterised as economic periods when prices rise with very active trading behaviour and busts are the inverse where prices and trading activity fall below par.

While the macro level effect of boom-to-bust cycles are relatively infrequent and difficult to predict, we find that in the housing market booms and busts are as frequent and predictable as mother natures seasons.

In most regions in the United Kingdom, a noticeable annual housing boom takes place in the second and third quarters of the calendar year (spring and summer, known as the hot season), followed by the fourth and first quarters (autumn and winter, the cold season). This is a fact confirmed by estate agents who observe that prices during the winter months show less activity and yield lower prices. An interesting note is publishers of house price indexes go to great lengths to produce seasonally adjusted versions of their indexes. As expressed by some publishers:

“House prices are higher at certain times of the year irrespective of the overall trend. This tends to be in spring and summer… We seasonally adjust our prices because the time of year has some influence. Winter months tend to see weaker price rises and spring/summer see higher increases all other things being equal.”(Nationwide House Price Index Methodology.)

“House prices are seasonal with prices varying during the course of the year irrespective of the underlying trend in price movements. For example, prices tend to be higher in the spring and summer months.”(Halifax Price Index Methodology.)

The real test of course is by doing the actual research on the quantitive data of the housing market and presenting the findings. I made a market analysis using Land Registry on “Price Growth” and “Sales Growth” rates between 2006 – 2017. I was quite surprised by the reality of the trends, which were very pronounced across Brent, London and National data sets as shown in the graph data below:

Using the combined quarterly data to illustrate the seasonal trends tenancy deposit solicitors no win no fee winter and summer, we can see a very distinct trend across all three data sections. Property prices between 2006 and 2017 show a consistent growth but curiously indicate a marked difference in momentum when comparing the seasons. In Brent, the summer prices between 2006 and 2016 showed an average growth rate increase of 3%, whilst in winter price growth slowed down to 1.4%. London mirrored this detail showing a growth rate of 3.6% in the same period during the summer months, slowing down to 2.87% in the winter quarters. Nationally we saw summer growth of 3.85% and winter growth of 1.6%, the data sets clearly show a seasonal bias.

Similarly during the same periods, sales activity showed the seasonal bias on human buying psychology. In fact by looking at the above graph data, we can definitely say that the seasons affect the mindsets of  the human population when it comes to property purchase. In Brent during the summer months there was a growth rate of 68% from 2006 – 2016, during the winter months sales activity went into the negative and fell to -15.9%. London showed a similar pattern of bullish growth in the summer periods of 44.25%, falling to 0.75% in the winter period. Nationally we saw summer sales growth of 36.65% and a negative of -3.7% during the winter quarterly periods.

I think we can agree and say that we still have an attachment to the natural rhythms of the planet, showing we haven’t quite reached the transhumanist vision of the technocrats. Perhaps this is a vantage point for the shrewd investor, why not take the route of the contrarian and use these trends to take the upper hand in the property market.