House price indices cause confusion

Several things are clear about the UK housing market. For example, transaction volumes are very low and mortgage lending is not far off the record lows established after the global credit crisis hit. It is also clear that house prices in London are rising.

It is not however clear in which direction house prices are going in the remainder of the UK.

We normally favour using the Nationwide Quarterly House Price Index as this usually seems reflective of market conditions, mirrors trends in several other house price measures and is less volatile than the Lloyds/Halifax Index. It also provides a quantum of how much prices have moved – unlike the RICS Housing Market Survey.

However, the latest release of the Nationwide Index claims that UK house prices have increased by 2.7% during Q2. But of greater significance and surprise is that it claims that house prices have increased in every UK region during Q2 2011. This seems remarkable given what we hear is happening in the market and, more robustly, what other house price measures are reporting. Interestingly, the other index that uses mortgage approval data to generate its house price index, Lloyds/Halifax, also reports that most regions have seen price rises during Q2.

Whilst both of these measures use perfectly valid data and methodology they do lack a direct link to estate agents and the market. For this reason, we tend to believe the trends reported by groups of estate agents in the form of the RICS Housing Market Survey. Although this survey does not give a quantum of how much house prices are rising or falling, it does specify the proportion of surveyors reporting price rises or price falls over the preceding three months. The latest RICS survey reports that, throughout the UK, 28% more surveyors say that prices fell rather than rose during Q2. Furthermore, the survey suggests that prices are falling in all regions except London.

Various other indices also suggest that house prices are falling marginally. For example, the Land Registry report that house price growth is currently marginally negative, both nationally and in most regions outside London.

So, although we usually favour using Nationwide for national and regional house price growth trends, the anomalies of the Q2 2011 results are pushing us towards using and believing the Land Registry results for the time being.

Our conclusion is that we believe house prices are falling marginally in all regions at present, except in London where price growth is positive.

Nationwide 1 2.7 4.2 3.3 1.3 2.6 1.4 1.3 2.2 2.4 3.4
Lloyds/Halifax 1 0.8 2.6 -0.4 6.3 1.4 -3.2 2.4 1.7 0.7 4.6
Land Registry 2 -0.6 4 1.3 0.0 -2.0 0.1 -0.5 -0.5 -0.9 -0.4 0.2
RICS 3 -28 23 -17 -40 -46 -33 -73 -27 -33 -34

1 % change in Q2 2011
2 % change in 3 months to May 2011
3 % balance of surveyors reporting price rises rather than price falls during Q2 2011
4 England & Wales, not UK