House prices - are they falling or rising? Both apparently!

A subject close to all of our hearts and we think we understand what is happening to average house prices – until Nationwide announces that prices fell by 1.3% in January and Halifax announces they rose by 1.9% in January. Very confusing when it comes to residential mortgages and Buy to Let mortgages! Further investigation only makes the situation even more confusing as a plethora of other indices appear to tell strikingly different stories:

So which one should you believe? The answer is - it all depends ...

Rightmove is a survey of asking prices and thus should be a leading indicator of prices – but quite clearly as the market started to turn down in early 2008 it took some months for sellers to adjust their expectations downwards to more realistic levels. The upturn in January 2009 is interesting if it represents something more than vendors deluding themselves.

Hometrack index is a survey of Estate Agents estimates of current prices in their locality – and they do not usually publish the full results of their survey. When the full data is examined their average price is the lowest of the above surveys.

Land Registry index is based on prices recorded on sales at the Land Registry and therefore has a “natural” bias in favour of those properties that tend to be traded regularly.

Halifax and Nationwide indices represent the prices used in valuations for mortgages issued by the respective lenders. In theory they should tell similar stories – but differing criteria on mortgage products available at any given time can “skew” the samples to produce very different results as has happened in January. Also the Nationwide index is published during the month (rather than after the end of the month) and consequently is not strictly an index for the month as a whole – although this should obviously balance out over time.

FT HPI uses more sophisticated methodology to pick out the best of the other price data (in particular Land Registry) and should represent a more “reliable” guide to price movements – but I have to admit this analysis is based on a review of indices produced by “Acadametrics” who also produce the FT index!

What can be said with a reasonable degree of confidence is that prices paid have fallen by around 15% from their peak and that many vendors are still holding out for better prices – there is no evidence in the statistics of significant distress selling.



Further information on the different indices is at http://www.acadametrics.co.uk/House%20Price%20Indices%20Fact%20or%20Fiction.pdf