Copy article

Third party house price indices can be "ham-fisted in how simplistic the valuations are"

Journalist: John Choong (Head of Markets and Research), Newspage

ended 18. August 2024

House prices are on their way back up, or are they? The most recent Nationwide and Halifax indices showed house price growth finally breaching the stubborn 1% threshold in July. Prices grew by 2.1% and 2.3% on an annualised basis, respectively. This comes on the back of a post-election boost in demand, as well as a slow but albeit improving price-to-earnings ratio, as wage growth continues to outstrip house price growth.

Critics, however, remain sceptical of the reliability of third-party house price indices. Many claim that the nation’s biggest mortgage providers have an interest in "artificially" raising the average house price. Critics claim that these organisations are stoking fears of missing out, in order to instigate potential buyers to buy into the market before house prices rise further.

Their main argument stems from the latest Rightmove data, which showed asking prices beginning to decline. This suggests a disconnect between the house prices reported by the mortgage lenders and the market. The claim being made here is that falling asking prices indicate cooling demand. And with housing supply also shooting up as the number of available listings rise, a disconnect could be at play.

Three questions for Newspagers:

  1. How reliable are the Nationwide and Halifax house price indices compared to other market indicators?
  2. What factors might explain the discrepancy between rising house prices reported by Nationwide and Halifax and declining asking prices by Rightmove? Are there regional variations in house price trends that might not be captured by national indices?
  3. What other economic indicators should we be considering alongside house price indices to get a more comprehensive view of the housing market's direction?

4 responses from the Newspage community

Copy all

Copy

Editor
Simon Bridgland
Director at Charwin Private Clients
The issue with Halifax and Nationwide indices is that they can seem a bit ham-fisted in how simplistic the valuations are. Having the average house price for each region can be useful for a general state of the nation’s stock. However, I feel platforms such as Rightmove help to better serve consumers.

When consumers are researching property, they normally look in one specific area or part of town. Therefore, consumer-friendly search tools provided on platforms such as Rightmove and Zoopla can give a more micro lens, focused on the areas buyers are looking in. Through that, consumers are able to see more local variations — perhaps one town may have its house prices raging, whilst another not far from it may be experiecing somewhat flat growth.

So, while these third-party indices have their value for some, I feel they are pretty useless in practical applications for consumers.
Copy

Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
The importance I attribute to house price data depends on whose name is at the top of the report. A better barometer is what we and our peers are seeing on the ground. That gives me the best indication of what is happening in the market.
Copy

Editor
Rohit Kohli
Director at The Mortgage Stop
These types of indices are useful for providing a general direction of travel, but they don’t really provide useful information for those actively looking to buy or sell, as there are so many nuances between what is seen on a macro-level to that in the area that matters to the individual. Hence, people rely on platforms like Rightmove or Zoopla, where they can get information on a street-by-street level.
Copy

Platinum
John Choong
Head of Equities and Markets at Interpretiv
Both Nationwide and Halifax HPIs have historically provided reliable data. However, their reliance on mortgage-only transactions can limit their accuracy during periods of market disruption. This was the case in late 2022 and 2023, when cash transactions surged as mortgage rates rose. This distorted the picture painted by these indices, which was evident in the gap between the Land Registry data and the third-party HPIs. But with mortgage approvals bouncing back and now close to where they were in 2019, the gap has narrowed since.

That said, there are other indicators that suggest a positive direction for the housing market. One of which is the rebound in consumer confidence — historically a reliable indicator for house prices. But perhaps most crucially, there has also been an increase in the availability of higher LTV mortgage products. This shows that lenders expect house prices to rise, as they wouldn’t otherwise risk getting their loans books exposed to negative equity.