News

CRUNCH THE NUMBERS - by Andy Lane

The Sunday Times (Homes Section) - 5th December 2004

Confused about the housing market? You ahould be.  Last month, Nationwide showed that prices were up by 1%, Whereas other house price indexes showed national price falls for the fifth month in a row.

It's vital to understand how house price indexes are collated - and particularly at what stage in the buying process information is gathered - in order to gauge what relevance they have to your proprty decisions.

Here is a home owners' guide to making sense of thoses often scary numbers.  First, let me outline what these surveys do not do.

They do not tell you how much your house has increased in value.  They do not tell you whether your home has increased in value by more or less than the market.  They do not tell you whether now is a good or bad time to buy or sell.

The monthly reports by Halifax and Nationwide are based on mortgage offers made by each company that month, rather than actual sales prices or completions.  Both indexes miss out on properties bought without a mortage , which are estimated to account for nearly 25% of all sales.

Halifax, which covers 23% of the mortgage market across the uk, publishes a seasonally adjusted index based on a standardised typically transcated house. This allows halifax to track the value of a ''typical' house over time on a like-for-like basis, preventing shot-term changes in propertiers sold each month giving a misleading impression of changes in the price of a 'typical' house.

Nationwide, the country's fourth-biggest mortgage lender, has 9% of the market.  It calculates its index in much the same way as halifax, based on mortgage offers for the month across the UK.  Its typical house is slightly different, and it changes the definition of a typical house and its regional weighting each year.

The office of the deputy Prime Minister's (ODPM) index is based on a sample of £30,000 mortgage completions across the UK each month (about 30% of the market). It breaks the market into 100,000 segments, each reflecting a different type of property in a different area.

The ODPM index is calculated on the price paid for a property; some other indexes are weighted on volume of transactions rather than value.

The Rightmove index is based on the asking prices of properties at 6,300 estate agents in England and Wales (about half the market ) and is calculated in a similar fashion to the ODPM index.  It provides an early indication of price movements, although, of course asking prices are generally higher than actual selling prices.

The Hometrack survey is based on price reports produced by £3,500 estate agents in England and Wales (about 30% of the market ) and calculates its index on the basis of accepted offer prices.

The information from Rightmove and Hometrack contains statistics on the number of properties coming onto the market each month and the length of time to sell a property.  This information is available by area (and by postcode on hometrack, which also gives the percentage of asking price achieved), so it can be useful for assessing activity and confidence levels at a very local level.

Again, the weekness is that the information is based on a limited number of estate agents, and that the sample changes from month to month.  If one amazing house is the only thing to sell on its road, it can appear that house prices have shot up when, in fact, a more ordinary house would never attract such high prices.

The government's Land Registry quarterly index is based on every sale in the market, so it provides an accurate picture of price movements across England and Wales.  The analysis is taken from completion dates (likely to be at least two months after the sale price os agreed or mortgage offer made) and is published at the end of the following quarter.  This means that at the time of publishing, while accurate, the figures can be up to six months out of date.  The land registry uses a simple average calculated by looking at the total value of homes sold in a three-month period.  If a lot more expensive or cheaper homes are sold compared with the preceding period, this will affect the index even if house prices have not risen.