House prices: Up, down, whatever? Is there just too much data around to really know

17th June 2011

An awful lot of people in the UK are obsessed with house prices – mainly because they are seen as a leading indicator of how wealthy we are as individuals and as a nation.

While this is itself debatable it hasn't stopped some of the nation's largest mortgage lenders, from publishing monthly indices which claim to be the definitive guide to the state of the UK's housing market.

Such claims have started to lose credence, particularly because they often appear to disagree on where house prices are going.

Ray Boulger, financial adviser at John Charcol, and a leading mortgage market commentator, has had enough.

He believes that disagreements between two of the main indicies, published by Halifax and Nationwide, on the movement in house prices makes the figures a "farce".

His gripe is the way the lenders have seasonally adjusted their figures.

Boulger claims there is no consistency in the way the 'seasonal adjustment' is applied meaning that house prices are not adequately represented by either index.

Boulger says that because these statistics are used by the Treasury, Bank of England and others, such revisions bring the original seasonally adjusted figures into disrepute.

He suggests leaving the real figures and not trying to adjust the figures, explaining: "Whilst it is true that activity in the housing market tends to be seasonal, this doesn't automatically mean that prices are impacted by the seasons.

"At the times of the year when activity is normally greatest both more buyers and more sellers tend to be active. Whether buyers or sellers predominate, both at times of greater or lesser activity, is much more likely to be driven by other factors, such as interest rates, mortgage availability and consumer confidence."

His solution: "To help restore confidence in all UK house price statistics, not just those from Nationwide and Halifax , I suggest all providers should as an absolute minimum give at least as much prominence in their press releases to the real figures as they do to the seasonally adjusted ones.

"This would make it much easier for policy makers and commentators to interpret the figures sensibly without needing to do further research."

Boulger does point out that the government is currently reviewing how house price indexes are calculated.

At the end of last year FTAdviser s ran a story which reported that the The Office for National Statistics (ONS) was investigating what it called the "coherence and comparability" of house price indices after a number of people confessed being confused by the data.

The five main indices in the market include Halifax, LSL Acadametrics house price index, Rightmove, Nationwide and the Communities and Local Government (CLG).

Stuart Law, chief executive at Assetz, told FTAdviser the monthly indices use different sources of data and represent the different stages of the buying process such as asking prices, mortgage approvals and sold prices."

Even Martin Ellis, housing economist at Halifax, admitted the different results were sometimes inappropriately applied with erroneous results.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said the housing market was not a single market and that indices sometimes treated it as such.

He said: "Consumers need to look at the locality for individual sales such as a borough in London or an individual street.

"The headline growth rates are often quite misleading and this adds to the confusion."

Simon Ward , chief economist at Henderson, believes diverging house price indices only servie to support those who publish them.

"[It is a] boon for biased commentators seeking evidence to support their particular thesis.

On his blog Ward publishes a chart comparing five widely-quoted measures.

According to the chart the Halifax / HBOS index, shows prices are down by 20% from a peak reached in August 2007, they then fell by 4% in the year to May.

At the opposite end of the range, the LSL Academetrics index is 3% below its February 2008 high and has risen by 1% over the last year.

The issue is, says Ward that various indices are compiled different.

For example LSL Academetrics and DCLG use value weights (average property price) while the Land Registry (LR), HBOS and Nationwide use volume weights (average home-owner experience).

Other important differences include the sample used and sample size as well as the stage of purchase process.

In Ward's opinion the LSL Academetrics index is the "best" value-weighted measure, since it is based on the largest sample and includes cash sales. The LR index is the preferred volume-weighted measure for the same reasons.

The trade-off is that they are less timely than the Halifax and Nationwide indices.

However it may be a case of what index to avoid, Ward says: "The recent significant divergence of the HBOS index from other measures suggests that it should be given less weight in assessing market trends."


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