Value versus trend

Three cases illustrate the cycle of relative value

  • Consider three of the 9 cases, taken from two extremes of price, and a midpoint

  • In each case we see the actual price in colour, the trend or ‘fair value’ price in black, and the difference as a red/green barchart below

  • The trend value is a national average, adjusted for the pricing in the area concerned

  • When the actual price is below ‘trend’ this is good value, so it shows in green - conversely poor value shows up in red

  • WC (Central London) has shown wide swings of up to 0.2 (20%) in over- and under-valuation, and is currently heading into under-valued territory

  • B (Birmingham) has more muted swings such as +/-10%, and following its recent strong positive performance the model flags it as slightly above fair value

  • TS (Cleveland) shows up as undervalued on a relative basis, as well as being the cheapest postcode nationally on an absolute basis - this valuation should lead to some relative outperformance going forward

  • This type of ‘relative value’ signal is useful in conjunction with price momentum to identify areas ‘on the up’ but not yet overpriced