Reader’s Question: House Price Indices Explained

3 min Read Published: 29 Nov 2010

 Question: House Price Indices Explained

Dear Sir

How come I seem to constantly read news stories about house price movements which conflict each other? One day the headline states prices have fallen 1% then the next day it’s suddenly become 3%. How can this be and who should I pay attention to?

Thanks

 Mr P Feldon

My response:

I can understand why people become baffled by the often conflicting ‘house price’ stories in the press. But the reason why there are so many conflicting headlines is down to fact that there are a number of different indices out there which supposedly measure house price movements. A number of these are published by banks and building societies, such as the Halifax and the Nationwide, while others are provided by estate agents. So which should you pay attention to?

Good question. Each house price is calculated in a different way and I’ve explained how each index is measured. After reading this you may decide that one index is more relevant to you than the others:

  • Halifax - Only analyses its own approved mortgages and therefore doesn’t include cash purchases. As the Halifax has a stronger presence in the north of England this could skew the results.

 

  • Nationwide - Also only analyses its own approved mortgages and has a greater presence in the south of England which could distort results.

 

  • Royal Institution of Chartered Surveyors - Produces a much less scientific survey based on trends reported by local estate agents and surveyors.

 

  • Land Registry - Conversely only reports on completed property transactions, so could be up to six months behind the market.

 

  • Rightmove - Compiles figures based on asking prices listed on their website which could be around 10% above realised sale prices.

 

But don’t bet your house on an index as there are a few thing to bear in mind:

  • House price indices are exactly that, an indication of recent historic average property price movements. So while an index may go down, your property value may well go up.
  • Perhaps more importantly, indices are published to gain free publicity for the organisation concerned, not for any other altruistic reason
  • If you want to gauge how property prices are doing in your area you will be better off keeping an eye on the local property papers and estate agency windows.

 

(image by Filomena Scalise / FreeDigitalPhotos.net)

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