a new official monthly house price index david wall odpm l.
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A new, official monthly house price index David Wall, ODPM Background House Price Working Group: Cross-cutting group to oversee the development of an official house price index. Choice of two approaches:

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Presentation Transcript
background
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

choice of data sources
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
slide5
Annual house price inflation derived from mix-adj Land Registry data, England & Wales, Jan 2001-Mar 2003
survey of mortgage lenders
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
survey of mortgage lenders7
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+
benefits of new methodology
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

selecting the preferred model for price estimation
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
the main explanatory variables
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)
main features of the new index
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
launch of the new index
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
planned releases
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

further issues to consider
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