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

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
Choice of data sources

• SML
• transactions sample of mortgages
• coverage UK
• property type yes
• dwelling size yes
• full postcode yes
• timeliness one month

• Land Registry
• ALL purchases
• (including cash)
• England Wales
• yes
• no
• yes
• up to three months

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