Nationwide and Bank of England housing figures better tthan reported
Posted on 6 April 2009 by
Nationwide’s House Price Index has traditionally been less volatile than Halifax’s and so it was particularly encouraging when Nationwide reported a 0.9% increase in house prices in March. However, the real figures are even better than that because the figures that both Nationwide and Halifax report are doctored, or “seasonally adjusted” to use the technical term. Economists love their seasonal adjustments but, although the seasons do have an impact on the property market, other factors are mush more important at the moment. The real increase in house price last month according to Nationwide was 2.2%, whereas in March last year real prices fell by 0.1%, proving that seasonal factors are not always strong enough to override the market trend.
Interestingly, although the media en mass, as usual, only reported Nationwide’s + 0.9% seasonally adjusted figure, some papers also published the real average house prices for February and March, which were £147,746 and £150,946 respectively. It appears to have escaped their notice that the difference between these two figures is 2.2%, not 0.9%, thus making their report rather confusing to anyone with even a modest mental arithmetic capability. It may be difficult to work out the exact 2.2% figure without a calculator but it is a pretty simple piece of mental arithmetic to work out the difference is over 2%.
Nationwide also reports that since the market peaked in October 2007 prices have declined on average by 19%, but flats have declined by 22%, whereas the value of detached houses has fallen by only 16%. The fact that the Government for many years forced house builders to build a much higher proportion of flats than they would have chosen to has saturated the market for flats. One result of this is the current serious difficulty in getting mortgage finance for new build flats, particularly for Buy to Let, and this has contributed to their disproportionate price falls in some areas.
Although HBOS held out until recently, no doubt because of the large exposure of their commercial division to developers, every lender either won’t lend at all on new build flats (usually defined as any new or refurbished flat less than a year from initial occupation) or imposes a lower than normal maximum LTV on them. These two problems, of course, create a vicious circle. Hence the array of builder and/or Government incentives (various Homebuy schemes) to shift stock. I suspect the Government’s Homebuy schemes, whilst marketed as helping first time buyers, are more designed to try to make sure we still have enough developers left to ramp back up housing starts when the market picks up.
Backing up the Nationwide statistics are the February mortgage approvals figure from the Bank of England. This was widely reported as positive news because it showed an increase of 19%. However, these figures are also doctored, and by a huge amount in December and January. The real figures were even better, with February recording a 62% increase on January, compared to a decline of 5% in the same month last year.
Whatever seasonally adjusted figures Nationwide and The Bank of England report next month (April Nationwide figures and March Bank of England figures) the real figures will again be better.
Note. Halifax announced a seasonally adjusted fall in house prices of 1.9% for March but I focus on the Nationwide figures mainly because Halifax refuses to disclose its real figures when it publishes the seasonally adjusted monthly figures. The only way to get their real figures is to wait for the publication of the Halifax Quarterly regional figures, and the 2009 Q1 figures have not been published yet. A secondary reason is that, although both indices tend to produce similar figures over the medium to long term, Halifax’s monthly figures are more volatile than Nationwide’s. For example even Halifax doesn’t believe that after falling 1.6% in December, prices rose 2% in January, and the large falls in February and March of 2.3% and 1.9% respectively were no doubt in part due to clawing back the increase reported in January.
Categories: Property market, Bank of England, Buy to let, Mortgages
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murray says:
Is it not the case that demand for residential properties is very much influenced by the never ending media outbursts reporting Halifax and Nationwide surveys as to the declining housing market.
My concern is that market decisions as to when to buy/sell are being led by the Halifax and Nationwides statistics which are it appears 'fudged'.
If real figures were published (a) would demand have fallen back earlier in the cycle if the public were alerted to the falls earlier and (b) would demand return earlier if the public knew that pricing was not falling as fast now as previously??
Is there anywhere we can get a graph of the actual price changes as opposed to seasonally adjusted ones?
Ray says:
I agree that the way the media reports house price changes is a factor which influences many people’s view of what the market is likely to do in the following months and because papers find that a good house price story is an excellent way of selling extra copies house price indices will continue to make good copy, particularly when they show a large movement either way. Often I find the headline misleading, but the actual article more balanced.
I don’t think publishing the real figures would have significantly changed the course of house prices because over a full year the real figures and the doctored ones balance out. By definition over any 12 month period the overall movement in the seasonally adjusted figures will be the basically the same as the movement in the real figures.
What differs are some of the months in between with some months having the real figures adjusted upwards and others downward. The theory statisticians assume in making their “seasonal adjustments” is that prices are strongest in the most active months but there are many other factors influencing prices. The “seasonal adjustments” are designed to smooth price movements but they do that about as successfully as with profits policies have smoothed investment returns in endowment policies!
The point is that most people are being misled by the house price indices because they are nearly always reported as being real figures without any mention of the words “seasonally adjusted.” Most journalists simply report the figures the way the provider of the information wants them reported, which in this case is the seasonally adjusted figures presented to them on a plate in a press release. However, the information needed to report the real figures is readily available in a table in the Nationwide monthly press release (but not in the Halifax press release) and so would be easy to report (for Nationwide) for any journalist interested in getting behind the figures.
You can download the most recent and historic Nationwide house price indices press releases here:
murray says:
Thank you for your guidance which has enlightened me considerably.
I think my concern is that the conveyancing market is very much a confidence game. If buyers are continually told that prices are falling sharply they will believe the hype and hold back from buying - this leads to house price falls as demand slows.
My real problem here is that the Nationwide survey takes a very small sample of actual housing transactions for its survey and then is effectively fudging their stats with seasonal adjustments.
The area for error is huge - hence the difference between the Nationwide and HBOS figures.
Because buyers are relying on media hyped reports of Nationwide's survey reports to inform them as to the state of the market it is worrying we have to rely on such inaccurate stats to tell us how the market is fairing.
Neil Flynn says:
Please tell me you're not proposing that house price indices should be increased because the reason for the fall is due to mortgage availability. From one economist to another please tell me you're not suggesting that. Remember cheap credit was the engine that got this lame duck of the floor in the first place.
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