What do the various house price indices mean and how are they calculated?
Week in week out new data and statistics relating to the housing market are released from a variety of sources. They tend to appear to be contradictory and therefore create confusion across the board. This is hardly surprising given there are at least 12 monthly house price related reports and indicators that measure different data, making it impossible to draw comparisons. Some use estate agent data, others property valuer data, a few are based on approved mortgages and one is based on the price someone actually paid for a property. Consequently it's important to have a clear understanding of what each house price index measures and is therefore reporting in order to decide whether it's relevant to you.
Here's what the main reports measure:
Halifax and Nationwide house prices indices are based on the value of mortgages they approve and therefore on property that is for sale right now. Both of these roughly account for 8 per cent and 20 per cent respectively of the 75 per cent of sales that are mortgage financed. It does not include cash sales.
Rightmove focuses on property asking prices listed on their website and like Nationwide and Halifax only focuses on property for sale right now. By measuring asking prices, it does not reflect what buyers actually pay.
The Royal Institution of Chartered Surveyors (RICS) speaks to its members (estate agents and valuers) every month to see whether they are seeing house prices rise or fall, then turns this into a percentage. It records changes in market sentiment rather than actual house prices. For example, one month 34% more surveyors might see house prices rise rather than fall or 12% more surveyors might see prices fall than rise.
Hometrack's house price index is similar to RICS and is based on contributors' opinions on the achievable selling price for each of four standard property types in every postcode district, so the prices are hypothetical rather than based on sales.
Department for Communities and Local Government report reflects the value of mortgage completions, but unlike Halifax and Nationwide, they use more than one source.
Land Registry figures offer a record of all sold prices in England and Wales - arguably the most meaningful, but it's 4-6 weeks old by the time you've read about it. It includes all lenders, cash sales and auction sales as well as repossessions.
What these indices and various reports do not show is what has happened to the value of your property. House price movements are highly subject to location and national data often has very little to do with what has happened to the value of your property.
Zoopla lists every UK home, all 27m of them and our valuations are not influenced by sentiment and simply draw on available data for a given area. Or value estimates are calculated using a proprietary algorithm that analyses millions of data points relating to property sales and home characteristics in local geographic areas. Our estimates are constantly refined, using the most recent data available and a variety of statistical methodologies, in order to provide the most current information on any home.
Doing regular research into what is happening to local property prices allows you to make better-informed property decisions and gives you a clear advantage in the property market. With free value estimates for every UK home on Zoopla.co.uk along with sold prices and hundreds of thousands of properties for sale, it is much easier to get a handle on what is happening to the value of 'your' home rather than making decisions based on highly generalised and non-local statistics.