House Price Surveys - Confused?
February, 20, 2008
You can’t be blamed for being confused by the ever-present headlines about house prices:
“House prices fall for fourth consecutive month", “House price inflation halved in January”, “House prices rise in December", “House Price boom over?”, “Halifax says house price growth cooling”.
The news on property prices often seems contradictory and confusing. To try and cut through the jargon and hype, SaveBorrowSpend explains how the different organisations come up with these figures. Hopefully, if you can make sense of how the professionals make their decisions it might help you make yours…
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Just to give you a taste of the array of figures released on property prices, in January the Halifax reported house prices were static, the Nationwide showed a fall of 0.1%. Hometrack reported house prices fell for the fourth consecutive month in January and in February Rightmove has reported average asking prices up 3.2%.
The Land Registry figures for December showed average house prices fell by 0.4% - the first decline recorded by the Land Registry since August 2005. The Government (DCLG) survey put house prices up 0.4% in December compared with the previous month and Chartered Surveyors (RICS) reported the house price balance fell for its sixth consecutive month in January.
Who are the experts and how does it work?
HALIFAX
Unsurprisingly, given their market dominance, this survey is one of the best known snapshots of the property market. It’s also the longest running monthly report dating back to January 1983. It tracks a seasonally adjusted standardised house price based on mortgages agreed with buyers.
As the Halifax has a mortgage market share of just over 20% and the index is normally based on around 15,000 transactions. It's figures are regarded as particularly up-to-date as they are based on numbers from when mortgages are approved.
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However: As it is based on property sales financed by mortgage lending it ignores cash purchases which account for about a quarter of the market. So, a significant part of the wider picture isn’t included.
NATIONWIDE
Along with the Halifax, this is the other best known house price survey. It reports on monthly seasonally adjusted figures based on mortgage approvals with the Nationwide, which has an 8 percent share of the UK market. The data tracks a representative house price over time rather than an average.
However: Like the Halifax survey it doesn’t take into account cash purchases (25% of the market).
RIGHTMOVE
This is a monthly index from the property website, jointly owned by estate agencies. Its figures are a collation of asking prices for up to 200,000 properties placed on its own website over the previous month. The sample size is quite extensive: Rightmove claims to display around 35% of all homes for sale. Over half the UK’s largest estate agents choose to list their properties on the site.
However: The data is not seasonally adjusted and does not reflect the prices at which properties actually sell! Economists say asking prices can be a good indicator but the gap between the price advertised and the actually price paid can often fluctuate dramatically. In rising or falling markets this will be especially significant.
HOMETRACK
This is a monthly survey of average property prices for England and Wales. Data is collected from 3,500 estate agent offices from 2,200 postcode districts, who are asked to report on whether asking prices are rising or falling.
However: Like Rightmove the data is not seasonally adjusted and does not reflect the price at which properties sell.
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THE LAND REGISTRY
This is a monthly, seasonally adjusted, report on price inflation for residential property in England and Wales. Despite only being launched in 2006 it's set to become the most authoritative survey and has already become very well respected. The Land Registry has recorded all property sales since April 2000, producing a monthly report on top of its quarterly survey.
Did you know that of the more than 7 million sales since 2000, nearly a fifth involve the same property being sold again? This enables the Registry to measure how prices have changed over time. Because it takes virtually all residential property sales into account, the figures can provide a unique insight into not only national but local prices, down to postcode level.
There is a similar survey in Scotland, known as the Register of Scotland.
However: It lags behind other house price surveys by a month, a tradeoff between accuracy and speed!
DCLG - DEPARTMENT FOR COMMUNITIES AND LOCAL GOVERNMENT
This is the Government’s own monthly house price index and is based on a weighted average of prices for a standard mix of dwellings at completion of sale. It uses approximately 50,000 completions a month from 50 mortgage lenders and offers indexes for the whole UK, the major regions and one for first-time buyers.
However: It does not include cash purchases (25% of the market) and as it is based on completions it can lag behind other surveys.
RICS - ROYAL INSTITUTION OF CHARTERED SURVEYORS
This survey really reflects confidence in the property market rather than what is actually happening to house prices. It is based on reports from around 350 chartered surveyors who are asked whether they feel property prices are rising or falling. It covers 4-5 percent of property transactions and is generally the first to show and real sea change in the market.
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However: It provides mainly anecdotal evidence and gives little indication of the size of moves.
In essence no one survey can give a precise picture across such a fluid and diverse UK housing market. However many commentators are now trusting the Land Registry to give the truest figures. Next time you see the Shock! Horror! House price headlines, just remember the facts behind the figures!
SaveBorrowSpend Philippa Adam
