Do we need an official house price index?

House for saleIt seems like barely a day goes by without another house price report telling us which way prices are moving. But with the indices frequently contradicting each other it's hard to tell what is really going on.

So is the Government right to call for a single official house price index?
What's the deal?
Just before Christmas national statistician Jill Matheson called for the introduction of a single definitive house price index, to help clear up the confusion caused by the many conflicting indices.

She believes the index should be accompanied by a range of data, including a comparison of the official figures to the other leading house price indices.

Matheson said: "There is a great deal of interest in and importance placed on changes in the value of our houses by all sections of society. I want to be sure that official statistics producers are providing the right statistics on house prices to support decision making by us all."

There are already two Government providers of house price statistics - the Department for Communities and Local Government (DCLG) which covers the UK and HM Land Registry which covers England and Wales. The idea is that they will work together to come up with one definitive set of house price stats in the future.

Is this a good idea?
In theory, yes. Over the whole of the last year the housing market was pretty much static but, because there was no clear trend, we had many months where the major indices contradicted each other. Given how important the housing market is to national sentiment and the wider economy, a bit of clarity could be invaluable.

Firstly, an official index would look at a bigger sample of data, meaning that it should be more accurate.

Some of the major house price stats currently provided by lenders or property portals simply deal with their own data, so provide a snapshot of the market but one that may not be representative.

The mortgage lenders for example only collate their data based on mortgage approvals, so properties bought outright are not included, and it can be argued that some lenders have regional biases, which can skew the figures again.

In addition, mortgage approvals do not equal completed transactions because many transactions fall through between the mortgage being approved and the completion date.
Asking price or sold price?

Rightmove, another major index, bases its figures on asking prices, and there is clearly not always a direct correlation between what somebody is asking for their property and the price it eventually sells for.

All this suggests that an official house price index would be useful, to give an accurate picture of actual transactions that have taken place, using a large national sample.

Assuming the cost isn't prohibitive, there seems little reason to be against the idea.

Andrew Montlake, director of mortgage advisers The Coreco Group, said: "The big issue at the moment is that the plethora of house price indices combine to create even more confusion for the average home buyer. This is especially true in a period where transaction levels are low, as any small change can be blown out of proportion.

"One index showing prices falling whilst another says they are rising is not helpful to anyone. In a perfect world it would be beneficial to have one official index of actual sales prices that is a constant guide."

But what an official house price index definitely won't do is replace the myriad of other figures we already receive. Indeed it will only add to it, as Montlake points out: "Other index producers may not be keen to abandon the publicity they receive on the back of their indices in favour of one official index."

All part of the process
More importantly, despite the perceived flaws of some of the other house price indices they have one major advantage over the proposed official index. They capture the price trend at an earlier stage of the buying process.

Any official price index will have to be based on actual completed transactions in order to be accurate, but it can take a long time for a property to be sold. So by the time a property is registered, the data is actually relating to activity on the ground some time earlier.

HM Land Registry house price figures for example are currently seen as the closest to official house price stats available. But homeowners register their property weeks after completion, so the data can relate to housing sentiment three months after it has happened.

In other words any official house price index based on actual completed transactions will lag behind the market.

Why does this matter?
In the modern world of 24-hour news, buyers and sellers want the most up-to-date information on house prices.

By taking a measure earlier in the property buying process, providers can track changes in trends before they feed through to actual transactions.

Rightmove catches these trends at their earliest, by measuring asking prices and therefore seller, and estate agent, sentiment. It may not be perfect but it gives a really useful indicator of where prices are heading.

Halifax and Nationwide collate their data at the mortgages approved stage, still a good month or so before a transaction is typically complete.

This explains why those collating information after completion, including HM Land Registry, DCLG and the LSL/Acadametrics index, in addition to the proposed official index, will never be enough for the info-hungry British public.

They may be arguably more accurate but they are, frankly, too slow for the fast-paced world of property prices.

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