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We have been looking at various indices, and now we ought to be in a position to decide where property prices are headed during the coming year.

First on the list was the Affordability Index. We found that it was slightly overbought, but not seriously so. It has certainly managed to rise in the past much more than its current figure. There are no warning signs here. There is no reason to fear a crash. There are those who point to the coming hike in stamp duty, which is a purchase tax under a fancy name. That will push the Affordability Index up another notch, but IMHO that will not be enough to cause a slump in prices, maybe just a hiccup.

Conclusion: House prices are currently relatively stable and there is room for a small increase in prices.

Our next index is the Rent/Mortgage Index. How much does it cost to rent versus the cost of a mortgage? If it costs more than 20% to buy then people are going to rent. If it costs more than 20% to rent they are going to buy.

My own situation has been showing that I would get more income from investing the money in securities than I currently get from the rent I receive. From a purely financial point of view I should get rid of the rest of my properties. What that also means is that if someone is seeking a place to live, renting ought to be the cheaper option. However, it all depends on where you live.

Let me do the maths on my own home. It is a four bed farmhouse set in a two and a half acre garden, with a stream as the bottom of the garden, and we are approximately three miles from the sea in the Algarve. The nearest town is less than a ten minute drive away and I am a mile from the nearest motorway junction. If I rented the property on a long term let I would not get more than €1,500 a month. If I sold I would net somewhere around €750,000.

I could easily invest the money to bring me in 10% a year, which would give me an income of €6,000 a month. Why am I paying for insurance, repairs and renewals, council tax, etc for the privilege of staying here? I would do better to sell the place and increase my income by converting the real estate to capital, and using that to invest in something bringing in a decent return while renting.

Let's leave aside other issues, such as what I actually want to do with my life, and home in on the money. On our rent-to-mortgage scale I am living in a greatly over-priced house.

But if i sell I lose the opportunity to benefit by any future price appreciation?

My response to that is "What appreciation?" If the house is already over-priced it may get even more over-priced, but to get the proper benefit from future appreciation you need to buy low, not buy high.

I also own a property in West London. The maths come out roughly the same there. However, I am talking about real estate as an investment. Most people regard it as a home, and a possession, despite the fact that most people don't really own their home, the mortgage company does. But how many people realise precisely what house ownership really costs?

The fact of the matter is, in many areas houses are just too expensive on a relative scale.

Conclusion: house prices are far too expensive.

The House Price Index is up about 5% over the past year. That's a historical figure. We need to look into the future. What will it do this year?

Wages are up about 1% after allowing for inflation. That's not much. Basically it means there is room for a modest rise in house prices.

Let's take a break and see how we are doing? One index suggests house prices are already too high, the other two suggest there is room for a modest rise. Let's move on.

The Auction Index is an interesting one. The first item I noticed when I checked this was the unusual amount of properties withdrawn from the lists. Many folks are waiting for a more favourable time to sell. They see better times ahead. Let's hope they are right. But no matter where we are in the country (except, that is, for Sussex) the values are low. This would indicate that it is probably a good time to buy.

The odds look to be stacked in favour of house price rises over the coming months. However, we have one more index to rate. What is the state of the mortgage market?

At the moment it is clearly not good. If you have a good job with a comfortable income you will still get a mortgage, but how many people are in that position? Rather too many are now on public assistance, small businesses are in a precarious state, and the future is uncertain.

If you go back to my earlier blogs you will see that I showed that the real increase in house prices was due to a surge in lending. I dont see that taking place any time soon. Maybe things will go back to normal during the latter half of this year. Maybe. But until we can see some sunlight in the economic landscape, mortgage lending will be in no state to surge. That will be the main problem with house prices over the next few months.

Can I summarise? I think so. House prices will remain stagnant over the course of the first half of 2021. Always assuming we can go back to normal at least some time during the summer, we are likely to find a resurgence in the market with some useful rises in prices achieved. If you want to sell, hang on in there at least until the end of the summer. If you want to buy, wait until there are signs of a return to normal and then buy before the surge.

One final thing. I do answer questions. If you have a question about house prices, general markets, or anything related to real estate then please dont be shy. I'm here to help and I have no axe to grind.

I do of course get feedback from these blogs, and I would like to encourage more feedback. I long ago learned that although there is an abundant supply of fools on the planet, there are also, thankfully, some very intelligent and interesting people, and such folks help the rest of us improve our thinking.

One of my readers, Bernard, has been adding his comments to several of mine, and I thought it would be helpful to spread the discussion more widely. He says: "The problem with affordability index, is that it is so sensitive to interest rates."

Indeed. As it deals with the amount of money you have to pay out every month to service the mortgage loan the size of that monthly amount will depend to a great extent upon the current interest rate. I will devote a future blog to investigating this index in more detail sometime in the future, but next week I will start a short series of blogs about the state of things in different parts of the world. Do you think the grass is greener somewhere else? I'll try and find out. See you then.