Teresa Hunter: House price riddle leaves us all scrambled

IF TRYING to understand the property market is like cracking a hard-boiled egg, last month's figures must be the brute that's been in the pan for a full 30 minutes.

There are two schools of thought when it comes to house prices. One says we are over the worst, and can look forward to gently rising values from hereon in.

The second points to months of austerity ahead with wage cuts, freezes and rising unemployment. The property snake will arise and charm us down the second painful leg of our descent into house price hell.

Yet, anecdotally, activity and prices seem to be holding up. Most of us could point to properties in our area which have been up for sale for some time, and suddenly sold.

So what does the data show? Unfortunately this is where the picture gets scrambled. The latest figures from the UK's biggest building society say prices rose 0.5 per cent in May, pushing them up nearly 10 per cent compared with last year. Even more welcome, they have recovered so much ground over the past year that we are only 9.5 per cent below the peak reached in October 2007.

Until, that was, the Halifax created produced considerably more pessimistic numbers. While its May data was not a million miles from the Nationwide, showing a 0.4 per cent rise, this leaves values only 6.9 per cent higher over the year.

Furthermore, it dismisses claims of a strong recovery, believing that prices remain a sickly 16 per cent lower than the peak nearly three years ago. Never in the history of mass homeownership, have house prices suffered such a prolonged shelling.

Even that's not the end of the frying for home-buyers. While the Nationwide says property so far this year has increased in value by a steady 2.9 per cent, the Halifax calculates that so far in 2010 UK values have fallen by a 0.7 per cent. Could this mean the pessimists are right, and prices have already begun to collapse for a second time?

I'll give the egg yolks a rest now. But it is intriguing, not to mention faintly disturbing that the Nationwide and Halifax data should be diverging so strongly, just as the economy and housing market stands at a cross roads.

It is true, their monthly figures are often at variance, but they usually agree on the trend. The picture in Scotland according to the Registers of Scotland and various local data mirrors that of the Nationwide, pointing, to a slow steady recovery.

Edinburgh Solicitors Property Centre says average prices in the capital are 12 per cent higher than a year ago, and only 6 per cent behind the peak, having climbed to 230,000.

But it all looks a bit flaky, against the authoritative reports from Halifax, which has twice the market share of the Nationwide, and dwarfs the Scottish bodies.

Yet Nationwide and Halifax seasonally adjust their figures on the basis that seasonal factors distort the market, and can give a false impression of price movements. But they use quite different calculations to do so.

Interestingly, once you remove the seasonal factor, their numbers are much closer. Nationwide has prices up for 2010 by 2.4 per cent, with the Halifax close behind at 1.6 per cent.

Many housing commentators believe that these offer a more realistic portrait of what is happening in the market, believing the old seasonal factors redundant in today's subdued and troubled times.

They have a point. Historically, the house buying season gets under way in the spring when we usually see a mini bubble in activity and prices.

This spring was overshadowed by an election campaign in April, ahead of going to the polls in May, to be followed by an emergency budget in June. It seems faintly bizarre to adjust for a seasonal boom that was never going to be.

More important than the weather is the availability and cost of mortgages in our new post-credit crunch world. Home loan finance is likely to remain tight, as banks face ongoing refinancing pressures up to 2013, not least as the Bank of England calls in its 300 billion-worth of IOUs.

But interest rates are due to remain low, and in the wider economy a recovery of sorts is under way. It won't be lighting any fireworks or rockets, but I think it'll be enough to prove the house price pessimists wrong.

Then again, Halifax was two to three months ahead of Nationwide in spotting the 2007 downturn in prices. In which case our goose is well and truly cooked.