Buying an apartment in Manchester - a quick way to lose money

(click on the chart for a sharper image)

It has to be a nerve-wracking business owning a BTL flat in the North West of England. According to the Nationwide house price survey, since 2003, the market has "crashed" at least three times.

Obviously, this suggests a strong speculative component. When investors think prices are recovering, they pile in; when prices are crashing, they panic and sell. With the market dominated by short term sentiment, prices up in Manchester and the surronding cities are significantly more volatile than UK flat prices in general.The variations between peaks and troughs are just huge The north-west flat prlce index look more like a dodgy tech IPO than a real estate series. The potential for making and losing money are huge.

Prices in the North West are definitely on a downswing right now. Since the peak, the index has dropped just over 6 percent. However, Nationwide data is quarterly and only goes up to December 2007. It misses at least three solid months of housing crash during the opening months of this year.

There is another interesting aspect to flat prices in the North West. Up to the beginning of 2003, prices closely followed UK national trends. After 2003, prices depart from this trend and overall appreciation is much faster. However, in 2007, prices in the North West returned home to the national trend.

Anyone buying in Manchester after 2004 missed the boat. To prove the point, take a look at the black line in the chart. It connects the peak price back in 2004 and compares it to prices today. Someone buying at the peak back in 2004 would be about 3 percent up in nominal terms in four years.

Remember, these are nominal indices not real ones. In inflation adjusted terms, speculators buying back then would now be carrying signficant losses.

The vast majority of late-coming flat speculators would have been better off putting their money into a building society account.