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Morning Line: Can we believe the house price indices?
The Government is reviewing official house price statistic because it is concerned that the different methods used for calculating house prices may be causing confusion.
With house price indices showing different rates of growth or decline, how much notice should we take of them? The Government is reviewing official house price statistics because it is concerned that the different methods used for calculating house prices may be causing confusion.
The Office for National Statistics is investigating the ‘coherence and comparability’ of the two official house price indices – Land Registry figures based on the actual price at which a property is conveyed, and the house price index produced by the Communities & Local Government. The review will then consider house price statistics more broadly to see how useful they are to the public.
Perhaps the more relevant question is – how useful are averages anyway, other than to indicate a trend, when houses within 100 yards of each other can command widely different prices? This is most noticeable in London and other big cities where there are terraces of identical properties. One end of the street may be near a main road while the other end is adjacent to a park. The difference in values could be substantial. Properties on one side of a street can often sell for up to 30% more if there is a railway or motorway running behind the houses on the other side of the road.
What most people do if they are buying or selling is use their commonsense and do their homework. Clearly what house prices are doing nationally is not much use to you if you are looking for a two bedroom flat in Sunningdale. Geographical differences are enormous and national average house prices are even more misleading. Sensible buyers and sellers keep tabs on their local area and the location where they want to buy.
Today, this is relatively easy to do with websites such as Zoopla, Houseprices.co.uk and many more which are based on official Land Registry entries covering all properties conveyed in England and Wales. Just type in a post code and you can find out what your neighbour paid for their home when they bought last year. If a homeowner is seriously considering buying or selling they will also talk to local estate agents to get a feel for the market.
Indices produced by lenders such as Halifax and Nationwide do not include the conveyance of unmortgaged properties - a substantial and growing proportion of sales as the population ages and retirees trade down. Whereas the Land Registry figures, although at least six months out of date, include all properties in England and Wales, both mortgaged and unmortgaged – but not Scotland.
In addition, Nationwide regularly produces figures which vary significantly from Halifax’s findings because it has a greater presence proportionately in London and the south east. Meanwhile the Royal Institution of Chartered Surveyors produces a much less scientific survey based on trends reported by local estate agents and surveyors, as does the National Association of Estate Agents, while websites like Rightmove and Hometrack record different data including asking prices which may well be 5% to 10% above prices actually achieved on sale.
What the indices can do is indicate trends which might be useful. But even this is often misleading. In highly desirable locations – Rock for example in Cornwall, popular with middle class families - properties have retained their value in spite of national statistics showing a decline and desirable ones are selling for more than their 2007 values when nationally the market peaked.
When house prices fall sharply, only homeowners obliged to sell put their homes on the market which produces big distortions in the indices. Much of the recent recovery in prices is down to the fact that so few quality properties were put up for sale and those that were often commanded a premium which inflated averages.
Does the public care?
Most people make their own judgment about what house prices are doing in their area and with some of the indices being ‘seasonally adjusted’ they are about as much good as nothing in telling you what you might sell your house for or what you will have to pay for the property you want to purchase. You are much more likely to get a feel for what is going on in the market by talking to friends at a dinner party than consulting house price indices.
Indeed, the ONS admitted that the review was not a response to problems reported by either of the main government indices, and said that the first stage of its review would focus on how satisfied users were with the two official indices and whether they understood the differences between them. It plans to report back on this stage of the review before the end of the year.
What a waste of time. If the government is looking for cuts – this review looks like a pretty good candidate.
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