What’s going on with the “official” house price indices?
There’s quite a bit of divergence in the results of the ONS and Land Registry indices at the moment. The chart below shows the annual change in prices for the two indices (smoothed over 3 months) and it’s clear than the ONS index is indicating much better (or less bad) performance than the Land Registry across all regions but in particular the North of England, West Midlands & Wales.
It’s important to remember that the ONS index is based on data from the Regulated Mortgage Survey and so will only reflect the mortgage dependent market whereas the Land Registry index is based on repeat sales (measuring the difference between recently sold prices and historic prices for the same property) and so should cover a wider element of the market (it does have some exclusions).
Given that mortgages currently account for 66% percent of all transactions and the ONS reckons that their sample accounts for 65-70% of all mortgaged transactions, that suggests that the ONS is only capturing data on 43-46% of the market.
Although the Land Registry index isn’t perfect and only includes those properties for which repeat sales data exists, I think it does a better job at monitoring the wider market than the ONS index.
Therefore, the above chart suggests that one possible explanation for the divergence is that mortgage lenders are focusing on select parts of the market that are experiencing better performance than the wider market and the ONS mix-adjustment process is failing to account for this.
