Bill Jamieson: Confused on house prices? Join the dizzy numbers club

Published on Monday 8 March 2010 20:24

WHAT is the average house price? And by how much is it rising? Or falling? We have every reason to know exactly, as we have no less than seven house price indices – all published regularly.

But here's the strange thing. None of them agree. Depending on which index you take, the "average" UK house price now ranges between 156,900 (Hometrack) and 221,463 (Rightmove). And as for price movement, take your pick. Prices are either rising at an annual rate of 5.9 per cent (Nationwide) or falling by 1.9 per cent (Hometrack). In between, they are rising by 1 per cent (Nationwide), or by 2.5 per cent (Land Registry Index), or 2.9 per cent (Department of Communities and Local Government).

Confused? You bet. Barely a week now goes by without one of these seven organisations reporting on house price movements. Newspapers have a love-hate relationship with them. They bring both a fresh and compelling snapshot of the state of the housing market while their frequency – and widely differing numbers – brings bewilderment to readers.

Who in this dizzying downpour of statistics, this raucous cacophony of numbers, is the most accurate and reliable? According to Acadametrics, a consultancy specialising in mortgage risk, "a house price index is designed to measure the movement in the price of a typical, average house. There is no such thing as a typical, average house. Nor do the perfect data exist."

The Magnificent Seven of the house price index industry includes Rightmove, which tells us about asking prices shortly after the start of each month, while the government's Communities and Local Government index reports mortgage completion prices six weeks in arrears. Five additional indices, released at intervals, keep house prices in the public eye. An utterly confused eye, to be sure, and even more so when figures are based on low mortgage and sales volumes.

But it is not just confusion among the house-buying and selling public that is of concern. House price movements are of critical importance to the Bank of England in tracking and taking action to mitigate asset price bubbles of the type that came close to destroying the global financial system.

Ironically, the Bank's chosen inflation measure, the Consumer Price Index, does not have any housing component at all. It was adopted in 2003 in the run-up to our non-joining of the euro to make us more compatible with the eurozone. The CPI became the official index. Thus interest rates were held down as house prices boomed on.

Now the Bank is having to re-think its inflation monitoring. How it measures house price movements in future will be of critical importance. What measure will it use? What rate of increase will be deemed acceptable and what too "bubble like" in its dynamics?

Acadametrics has just published a helpful ten-page guide comparing the seven house price measures ( www.acadametrics.co.uk). It explains the different survey bases, methodologies and timings of the seven.

For example, Halifax and Nationwide report surveyor mortgage offer valuations taken from the sample of properties on which they are offering loans. The lender indices can act as lead indicators but, as noted by the Bank of England, they are more useful when they move together.

Unfortunately, the lenders have agreed on trends in only four of the 12 months monitored by Acadametrics for this survey. The Bank usually bases its house price analysis on the average of these two.

Hometrack provides estimated values collected by a survey on what a panel of some 6,000 estate agents thinks is the "achievable" price. The results reflect a degree of caution.

The Rightmove index provides asking prices for a sample of properties and is regarded as more of a confidence measure reflecting market sentiment.

The CLG index (England and Wales only) provides mortgage completion prices based on a sample of about 60 per cent of mortgages, while the Land Registry index (also England and Wales only) samples transacted prices.

Finally, Acadametrics itself ultimately employs every transacted price from the Land Registry. Its first release is a forecast designed to produce the most accurate early guidance, followed five to six weeks later by an updated index based on 85 per cent of the entire LR transactions for each month.

And what do current trends show? Without a mortgage revival, prices will stay muted for now.