It’s also important to note that this topic is also a work in progress and is not yet mature. Therefore as you’ve already done previously please feel free to comment on the analysis so that we can further improve the data for all readers.
Let us first look at the five datasets that will be used for ongoing analysis:
- The Rightmove House Price Index. This index simply tracks the average asking prices of properties as they come onto the market. This means it will be affected by price changes, if the mix of house type changes and if the mix of location changes for houses coming onto the market. It is not seasonally adjusted and covers properties from England and Wales. Asking prices in September were £234,858 which month on month is a fall of 0.6% and year on year is an increase of 0.7%.
- The Acadametrics House Price Index. This index is new for this blog and uses the Land Registry dataset. It mix adjusts this dataset to take a constant proportion of property types, from a constant mix of geographic areas. It is seasonally adjusted and covers properties from England and Wales. It covers buyers using both cash and mortgages. Buying prices in September were £225,374 which month on month is a small fall of 0.1% and year on year is an increase of 2.2%.
- The Halifax House Price Index. This index is based on buying prices of houses where loan approvals are agreed by Halifax Bank of Scotland. It uses hedonic regression to remove type and mix variations thereby measuring the price of a standardised house. I use the non seasonally adjusted dataset and it covers the complete United Kingdom. Sales prices in September were £160,437 which month on month is a rise of 0.2% and year on year is a fall of 1.2%.
- The Nationwide House Price Index. This index is very similar to that of the Halifax except it is based on buying prices of houses where loan approvals are agreed by Nationwide Building Society. Sales prices in July were £163,964 which month on month is a fall of 0.5% and year on year is a fall of 1.4%.
- The Land Registry House Price Index. This index uses repeat sales regression on houses which have been sold more than once to calculate an increase or decrease. This is then combined with a mean price which was taken in April 2000 to calculate the index. It is seasonally adjusted and covers properties from England and Wales. It covers buyers using both cash and mortgages. Sales prices in August were £163,376 which month on month shows no movement and year on year is an increase of 0.7%.
It is important to note that all of these price changes show nominal changes. If we correct for the devaluation of sterling through inflation then we see a very different picture.
There is a timing shift between these five indices which we must also consider. Firstly, a house is placed on the market for the first time (the Rightmove Index). Secondly, somebody possibly buys the house using a mortgage (the Nationwide and Halifax Index). Finally, the purchase is registered with the Land Registry (the Land Registry and Academetrics Index). The best estimate of this timing shift is shown in the chart below which is taken from the paper by Robert Wood entitled A Comparison of UK Residential House Price Indices.
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Click to enlarge
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So what does all this tell us? Unfortunately I think is going to take a few months of data analysis to get a proper handle on. My initial thoughts:
- I can’t help but feel that the Rightmove Index is just about useless. It doesn’t tell us what is happening to house prices as it only covers asking prices plus it can be skewed by location and property type mix variations month to month. The Rightmove to Land Registry Ratio is at 1.43 (ie the Rightmove Average Price is 43% above that of the Land Registry. This ratio was as low as 1.13 in 2004. I was originally suggesting that Average Rightmove sellers were over pricing their properties by 43% (and hence waiting for the Greater Fool) however the further analysis shown today also indicates that it could be simply a change in sales mix.
- The Academetrics dataset is only around 2.8% below nominal peak where the Nationwide/Halifax Average (HaliWide) is down by 15.7%. There are 2 big differences here. The first is that the HaliWide covers all of the UK where the Academetrics only covers England and Wales. Now we know that Northern Ireland has seen big falls already so as an England based person are the falls here less than the HaliWide would suggest? The second is that the mortgage providers require a surveyor’s valuation which should ensure “fair current” value is paid where Academetrics includes cash buyers who could be over paying?
- The Land Registry (which is England and Wales only also) contradicts this a little by ending up in the mid ground by suggesting a fall from peak of 10.4%.
Unfortunately all the additional research has probably raised more questions than it’s answered. So when I eventually start looking to buy a house what Index should I be using to work out how much I should be paying (offering?) by taking the previously sold price of the house and correcting for the Index change over that period? I think today’s analysis definitely rules out Rightmove. As for the others I think the jury is still out also. The HaliWide is possibly over stating the falls because of the inclusion of Northern Ireland. The Land Registry/Academetrics is possibly understating because of the possible cash buyer effect.
I guess I have a while to figure it out as houses to me are still way over valued. Your opinions/thoughts are welcomed as it may get us through the maze more quickly.
As always DYOR.