Should we really care about house price indices?

3 min Read Published: 09 Sep 2010
renjith krishnan / FreeDigitalPhotos.net
renjith krishnan / FreeDigitalPhotos.net

(Updated 23rd September 2012)

It feels like we are constantly bombarded with news on the direction of house prices, be it from the likes of Halifax, the Natiowide or the Land Registry. The array of numbers is mind boggling as is the fact that the indices often contradict one another. When one index claims house prices are going up another claims that they are falling. So what is going on and who should you listen to?

 

So why the difference of opinion?

Well the answer is mainly down to way the various indices are complied.

For example indices produced by Nationwide and Halifax do not include unmortgaged properties and only analyse mortgages approved by each lender. Nationwide has a greater presence proportionately in London and the south east, while the Halifax have a greater presence in the north. So these two factors alone could skew results.

To complicate things further the other well reported indices compile their data from totally different sources.

  • The Royal Institution of Chartered Surveyors produce a much less scientific survey based on trends reported by local estate agents and surveyors.
  • The Land Registry on the other only report on completed property transactions, so could be up to 6 months behind the market.
  • Finally Rightmove compile figures based on asking prices listed their website which could be around 10% above realised sale prices.

To complicate things even more the number of housing transactions is still very low, compared with a normal market, which will make any statistics very volatile. This is not unlike the stock market where on low volumes days the FTSE can bounce all over the place.

So should we really care about house price indices?

Well, firstly, the only reason these indices are published are to gain free publicity for the organisation concerned not for any other altruistic reason.

Secondly most people can 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 useful as a chocolate teapot in telling you what you might sell your house for or what you will have to pay for a property you want to purchase.

So next time you see a headline about a house price index ignore it and turn to the sports page, or of course read my blog.

Looking for a financial adviser near you?

Do you need financial advice? An independent financial adviser can show you how to make the most
of your money. Find your nearest qualified and regulated adviser using this VouchedFor search tool.

Alternatively, Hargreaves Lansdown, one of the UK’s largest firms providing restricted financial advice, is offering a £200 John Lewis voucher* to new clients.

  1. The short answer to the question is ‘no’. An ‘indicator’ is just that, it indicates, it could not possibly be a true measure of individual activity. Besides, on a more substantive perhaps philosophical point, a house is to provide a roof over one’s head, not as a means of financial speculation.

Comments are closed.