House price stats don't tell the whole story

10 April 2008

You can’t pick up a newspaper these days without coming across a headline about falling house prices. One week the figures come from the Land Registry, the next from the Bank of England and the next from a specific mortgage lender.

As a journalist, the latest housing market statistics are always good for a story especially at the moment when all eyes are on the housing market. But it does sometimes feel as though I’m drowning in a flood of different house price data that is often contradictory and rarely tells us what is really going on with house prices.

For example, the latest Halifax house price index reveals house prices fell by 2.5% in March – but this is an average figure. In fact properties in Greater London rose by 1.6%, while homes in East Anglia and East Midlands increased by 1.4% and 2.2% respectively.

The figures also show that in the first three months of 2008, homes in the West Midlands experienced the greatest house price fall – of 5%. Yet just over the boarder in the East Midlands prices rose by 2.2%.

The discrepancies increase if you compare Halifax’s March figures to Nationwide’s.

The bank says prices fell on average by 2.5% - but the building society says they fell by 0.6%. So which figure is correct?

The answer is probably neither of them.

My biggest gripe with house price statistics is that that don’t tell the real story. This is because before the figures are put into the public domain - via the media - economists adjust them to take into account the impact the time of year has on house sales.

This is called seasonal adjustment. The logic behind it is that at certain times of the year (Christmas for example) house sales dry up while at other times (spring) there is more activity.

This makes sense most of the time – but at the moment, when the housing market is in the midst of chaos brought on by the credit crunch in the US, there are plenty of factors other than the seasons inflicting their influence on house prices.

So if we take away the economists’ seasonal adjustments, how did house prices look in March?

Well, according to Halifax prices fell by 1.3%, a rather less sensational figure than the seasonally adjusted – 2.5%.

And according to Nationwide prices actually rose by 0.7%.

When I asked one of Nationwide’s economist about seasonal adjustments, he argued that, without seasonal adjustments, economists and journalists - not to mention the general public - would not be able to compare house prices on a month-by-month basis.

That makes sense but it still means that most of us never get to see the real rises and falls in house prices.

The lesson, I think, is to look at house prices on an annual basis rather than a monthly one, as this gives a truer picture of the health of the housing market.

Or better still, stop worrying about how house prices are performing over the short-term – for most of us, small falls in value won’t make much difference thanks to rapid house price inflation over the past decade.

When I bought my flat last year I hoped to move up the ladder after a few years – now that the credit crunch has come along, my plans may well have to adapt.

But changing my perception to see my property as a long-term investment and, more importantly, somewhere to live is no big deal. If nothing else, it saves me some anxiety when I see headlines that liken falling house prices to the apocalypse.