Property Talk: Why are there so many different ways of measuring house prices?

From the official UK government HPI to Halifax, Rightmove and others, it seems not a week goes by without a new and often controversial look at recent house prices. Annabelle Dixon explains how they all work and which house price indices to look out for.

Google “housing prices” and you’ll get an idea of ​​the sheer volume of research and data on the subject.

But there’s a problem: different ways of measuring home prices – house price indices, as they’re called – all show slightly different things. They all use different data sources, definitions, sample sizes, and methodologies, and with each variable changed, a slight change in analysis is inevitable. The new result is that one house price index can be very different from another.

You are forgiven for scratching your head sometimes. Here is a brief overview of what to look out for.

What asking prices tell us about the property market

First of all, this is information about the prices of houses that are on the market. Real estate portals Rightmove and Zoopla cover asking prices as well as other housing market activity such as buying demand and offering homes for sale. This type of information is based on properties for sale on their websites. This is a handy barometer of housing market sentiment.

But the asking prices do not match the selling prices. In the past year alone, the housing market has shifted, with homes regularly selling above asking price this time around in 2022, with several bidders entering the fray; today, with house prices falling rather smoothly in recent months, sellers are being realistic about accepting offers.

How mortgage contracts show the state of home prices

Figures from major UK mortgage lenders are based on sales already in progress and therefore reflect the state of affairs a little further down the home buying line. The Halifax and Nationwide home price indexes are based on their own approved mortgages, and the two companies are so large that they paint a pretty accurate picture of real estate values.

What they don’t take into account, however, is any last-minute price haggling, which is common in a down market, especially for those who could have negotiated a price months earlier.

It’s also worth remembering that they don’t count homes bought with cash: according to the government, between 30% and 40% of sales are made for cash. This is especially true of the most expensive properties on the market – and yes, many of them are featured here on rural life —because high-income buyers rarely have to worry about borrowing.

Why Official Government House Price Data Is the Most Accurate, But Also the Slowest

The ultimate way to measure house prices, of course, is just to look at property sales that have actually crossed the line, and this is where the UK Government House Price Index (UK HPI) comes into play. It is based on completed sales, including both cash and mortgage transactions.

In terms of housing prices, this is as straightforward as it gets. The index uses data from the Land Registry, the Scottish Registers and the Northern Ireland Land and Property Services and is calculated by the Office for National Statistics.

But there is another problem. Each property sale appears in the index only after it is registered at the very end of the transfer process, which can mean months, even after all home buyers in the chain are safely settled in their new homes. In other words, this is an absolutely accurate picture of the market, but usually 3-6 months out of date.

Whom to trust housing prices?

All this puts you in front of a riddle. Real estate portals can constantly measure the temperature of the market, but reflect the hopes of sellers and agents, not a concrete reality; lenders may update their latest home price data within a week or two after the end of each month, but do not cover the entire market; and the monthly HPI index for the UK is usually published with a delay of six weeks. Even so, it’s not accurate, as many sales take much longer to complete all the paperwork. The UK HPI eventually achieves this – it is reviewed regularly as more data is included – but by this point it is probably more used by economic historians than by people planning to move next year.

Gareth Lewis, chief commercial officer of real estate lender MT Finance, summed up the issue by commenting last month on HPI UK December figures released in February: months ago, so we still don’t see the full implications of the mini-budget and the impact it will have on buyers trying to lower prices.”

Can any of the house price indices be trusted?

The simple fact is that there is no single easy way to measure what is happening. There are some attempts to bring it all together: the Zoopla index, for example, is based on Hometrack’s home appraisers’ scoring model, which attempts to bring together sold prices, mortgage valuations, and matched sales data. But this kind of thing is based on a weighting algorithm, which will always only be an educated guess; and if you go that route, you should also take a look at the regular RICS sentiment survey (which compares the opinions of UK real estate agents and inspectors).

None of this is to say that indices are not worth looking into if you are thinking of taking the plunge and buying a house. “House price indices in general are an interesting economic barometer,” says Tom Bill, head of UK housing research at Knight Frank. “They reflect broader factors such as what is happening to interest rates and employment rates.

“All of these things affect housing market sentiment,” Tom adds, “but they don’t necessarily tell you much about what’s happening on your street.”

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