House price indices don’t add up
Significant differences between property indices serve only to muddy the waters as they make it very difficult to establish what the market trends really are.
The glut of different house price indices is creating confusion rather than clarity about the state of the property market, say experts. In recent months, two of the main property indices have given contradictory accounts on house price movements.
Halifax’s HPI showed property prices falling in December and January (by 0.8 and 0.5 per cent respectively) then rebounding in February, while Nationwide’s monthly HPI showed prices moving in the opposite direction in each of these three months. Analysis of both these two major indices by GPS Economics shows that over the past year they have only moved in the same direction in five of these months.
The differences can be significant.
In June 2017, Halifax reported that house prices fell by 0.9 per cent over the month, while Nationwide recorded a 1.1 per cent rise.
In January 2018, Halifax reported a monthly fall of 0.5 per cent, whereas Nationwide showed a more buoyant start to the year with a 0.8 per cent rise.
GPS Economics director Gary Styles says that the difference between the two indices’ regional data is even more marked. He says: “There is now a range of companies publishing housing market data. Much of this is looking at different data sets – be it asking prices, mortgage approvals or Land Registry sale prices.”
These are not always directly comparable, and can give quite contradictory pictures of what is going on in any one month. Styles adds: “However, Halifax and Nationwide use the same methodology and approach – by collating data from mortgage applications. But they can still come up with quite different results.”
This can lead to questions on the accuracy of many of these figures.
For the first time in 20 years, Halifax is making material changes to the way it calculates its house price index this quarter, but Styles says he doesn’t expect this will mean the two main house indices more closely align.
Mortgage brokers have complained that there is now an “overload” of housing market figures, and different datasets and variants in the way these figures are calculated are making it harder to spot trends within the housing market.
Among the monthly data published are: figures from the Office of National Statistics (based on Land Registry sale prices); Rightmove data (based on asking prices); regional figures from LSL Acadata (showing regional house prices); Hometrack’s city house price index; data from the Royal Institute of Chartered Surveyors and the National Association of Estate Agents – as well as the monthly house price indices from Nationwide and Halifax.
Coreco director Andrew Montlake says: “While they can be seen as a useful guide to general trends in the property market, it does get very confusing for people with so many different indices out there. It would be great to have one trusted index that people could rely on.”
John Charcol senior technical director Ray Boulger says the ONS figures provide the most comprehensive picture of house price movements, but there is often a considerable time lag before these figures are published, so they may not be an up-to-date reflection on current trends.
In contrast, he says Nationwide and Halifax offer a more immediate snapshot, although on a smaller sample – as both are based on their own mortgage applications. He says: “I tend to find Nationwide’s figures are more accurate and less volatile. Given the size of these lenders, this is still a large enough dataset to ensure statistics are robust.”
Boulger says discrepancies may emerge from the way different lenders apply seasonal adjustments and ‘mix adjust’ their figures. The purpose of this is to isolate price changes, by weighting the type of properties included each month. Boulger says he believes that non-seasonally adjusted figures can provide a more accurate picture.
Styles says brokers – and consumers – should be wary of putting too much weight on “monthly surveys” that were based on sentiment.
“It is important to weigh the quality of this data. Asking prices may not bear much relation to final sale prices,” he says. He adds that there is a danger that some of these indices were over-optimistic, particularly as banks will use this data to revalue their own mortgage books.
“There is a lot of data coming out and it’s important it is interpreted properly. The indices can provide a useful bellwether, but there is a danger they are simply a lot of noise at times.”
Source: Mortgage Strategy