Review of ‘confusing’ house price indices

Nia Williams

August 18, 2010

The National Statistician has started the review looking at the “coherence and comparability” of the indices produced by Communities and Local Government and the Land Registry.

In addition to these, Halifax, Nationwide and the Royal Institution of Chartered Surveyors (RICS) produce their own indices, along with the likes of Hometrack and Rightmove.

However, confusion is created by these as the prices reported vary considerably. Each index measures house prices at different stages of the home-buying process, with some recording the asking price when a property is first put on the market, while others measure the completed sale price. The different calculations mean that some indices lag three months behind others in the trends that they reveal.

Data collection methods also differ, with Land Registry statistics calculated on property registrations, for example, while the Royal Institution and others are based on survey responses.

The UK Statistics Authority plans to report on the review before the end of the year.

Commenting, Stuart Law, chief executive of Assetz, said: “The differing figures produced by the various monthly house price indices frequently offer a confused picture of the state of play in the UK property market.

“This is especially true at times of major price correction, when contradictory patterns of positive and negative growth emerge between the indices, as seen several times during the recent recession.

“In addition to the capacity for contradiction across the indices, I have always maintained that individual monthly indices from specific providers should not be viewed as reliable market indicators in themselves. Property is an illiquid asset and minor monthly fluctuations recorded by a specific organisation cannot be generalised to the sentiment of all homebuyers.

“Even seasonal adjustments recorded by some of the major indices can provide a basis for volatility between the different monthly figures, as these are set at the discretion of the organisation that produces them, leaving room for semantic and political decision making to impact on the data.”

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