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A new, official monthly house price index David Wall, ODPM

A new, official monthly house price index David Wall, ODPM

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A new, official monthly house price index David Wall, ODPM

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  1. A new, official monthly house price indexDavid Wall, ODPM

  2. Background • House Price Working Group: Cross-cutting group to oversee the development of an official house price index. • Choice of two approaches: - Overhaul the existing quarterly ODPM index taking advantage of an increased sample of completions - Use the Land Registry dataset

  3. SML transactionssample ofmortgages coverageUK property typeyes dwelling sizeyes full postcodeyes timelinessone month Land Registry ALL purchases (including cash) England & Wales yes no yes up to three months Choice of data sources

  4. Average house prices, England & Wales, Jan 2000-Mar 2003, partially mix-adjusted

  5. Annual house price inflation derived from mix-adj Land Registry data, England & Wales, Jan 2001-Mar 2003

  6. Survey of Mortgage Lenders • 50 lenders currently participate in the SML • Lenders complete a form for everyone applying for a mortgage (house purchase, remortgage or further loan - but only house purchases included in the house price index) • Summary data extracted from these forms and submitted during the month following the month of completion. • 5% sample of completions from some lenders; 100% sample from others

  7. Survey of Mortgage Lenders • Validation checks applied to all incoming records. eg checks on loan-to-income and loan-to-value ratios • Information processed includes: type of mortgage characteristics of the buyer(s) characteristics of the dwelling • Max completions per month: 82,000 if all 50 lenders were to supply 100% of completions • Used in new index: 20,000+ • Used in current quarterly index: 2,500+

  8. Benefits of new methodology • Larger sample size gives us a monthly series • Model estimation of cell prices gives greater flexibility: - no need for minimum sample per cell - more detail for existing variables (location, no of rooms) - can add new variables (once a year) - use of partial data (so validations have been modified) - identification of key influences on house prices, so better mix adjustment

  9. Selecting the preferred model for price estimation • A range of alternative models were compared and tested. Tests were applied to check the assumptions underlying the model, including: Tests for normality Missing variables Comparison of modelled means and actual means • The preferred model is a main effects model including seven explanatory variables and several significant two-way interactions between these variables

  10. The main explanatory variables Three variables unchanged from current index: • Dwelling type • Dwelling old or new? • Is purchaser a first time buyer? Two existing variables to be used in more detail: • Number of habitable rooms using individual values to 9, then 10 plus - instead of banded values; also accepting number of bedrooms if lender cannot supply rooms • Location1: County/London Borough instead of Government Office Region Two new variables: • Location2: Type of neighbourhood (ACORN Groups 1-17) • Location3: Local Authority cluster code (ONS codes 1-27)

  11. Main features of the new index • Annual chain-linked Laspeyres-type index • Methodological changes in January only - when the weights will also be updated • Cells created for all combinations of values of main variables with non-zero weights - nearly 100,000 • All valid price quotes fed into model, which then estimates current price for each cell. Each estimate transformed from geometric to arithmetic mean • Cell means weighted together to produce mix-adjusted average prices

  12. Launch of the new index • Initial launch as an experimental ODPM index - target date: September 2003 (with the July 2003 index) • When it has passed the necessary quality review it will be re-titled the National Statistics House Price Index (probably in early March 2004 when the Jan 2004 index is released) • Responsibility for the SML and the calculation and dissemination of the new index will remain with ODPM even after it becomes a national statistic

  13. Planned releases • Monthly Press Release tables, charts and commentary covering... monthly house price index series / annual inflation rates mix-adjusted average prices / median prices for…... UK, each of the four home countries and the nine Govt Office Regions for England • Quarterly Report more detailed statistics more detailed review of house price trends

  14. Further issues to consider • revisions policy published indices will be subject to revision for up to three months after first release • seasonal adjustments initially only a non seasonally-adjusted series will be published; will discuss with ONS whether an SA series can be published from Jan 2004

  15. Ultimate vision: development of an index based on Land Registry data

  16. A new, official monthly house price indexDavid Wall, ODPM