HOUSEprices
Get on the right track Andrea Kirkby wonders why house price indices never seem to agree. T
here used to be the Halifax house price index and one from Nationwide. That was it. They were definitive; house prices went up or down, and you knew exactly by how much.
Now, there’s a much wider range of residential property indices.
IPD, LSL, Hometrack, Rightmove, Primelocation, it can be a confusing landscape, with some telling you prices are rising, other that they’re falling. They don’t even agree on the average house price. Academetrics,
which produces the LSL index, points out that the average house price in 2010 might have been £220,000 or £170,000, depending on which survey you chose to believe. If you’re confused, you’re in good company, back in 1998
Mervyn King, Governor of the Bank of England, complained that the Nationwide and Halifax indices had diverged widely and neither he nor his economists could really understand what was going on with house prices. Nationwide was reporting a 12 per cent rise in prices, Halifax said it was 5.6 per cent, and the Bank, after careful research, thought it was probably about nine per cent. So why do these indices give such different answers? And do we
need them all? To understand why the indices have different results, you have
to look at the methodologies they use, what data they are based on, what is excluded, and how the raw data is adjusted. They’re also of different ages; Halifax goes back to 1983, the government’s Department for Communities and Local Government (DCLG) to 1968, and Nationwide to 1952 (though it was only annual until 1974), while some of the other indices don’t yet cover a full market cycle. So if you’re looking to understand the very long term movements of the market, only the older indices are going to be much help.
BASE DATA
First of all, the indices all use different base data. The Halifax and Nationwide data use the mortgages arranged by each lender as the basis for compiling the index, so, automatically, that excludes houses sold for cash. But it also means that the index will reflect the lending criteria being used by the lender, of course. Land Registry and the LSL index are based on completions,
40 JUNE 2012 PROPERTYdrum
You have to look at the methodologies they use, what data they are based on.’
using the whole market as the base for the index, but Land Registry excludes repossessions and houses bought at auction, which, it says, don’t represent the true market value. Meanwhile, Rightmove tracks prices for properties added to the website during the month, but appears not to capture changes in the price of properties that are already on the site. (Maybe a Property Snake index would be a good corrective!) Halifax excludes buy-to-let and other non-owner occupation purchases, while DCLG includes buy to let, though not purchases by sitting tenants. Other indices exclude properties above and below a certain
value. For most, this cuts out only very low value transactions (beach huts, garages, wrecks) or very high value.
Home.co.uk publishes an asking price index using over 750,000 prices, but excludes those over £1m and under £20,000; the difficulty, of course, is that in the London market in particular, the £1m-plus exclusion cuts out many reasonably ordinary properties. On the other hand, Primelocation excludes the vast majority of
the market in order to report only prime properties (top quartile) and, within this, prime platinum (top decile). If you’re selling prime
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