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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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A new official monthly house price index david wall odpm l.jpg

A new, official monthly house price indexDavid Wall, ODPM


Background l.jpg
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 l.jpg

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


Average house prices england wales jan 2000 mar 2003 partially mix adjusted l.jpg
Average house prices, England & Wales, Jan 2000-Mar 2003, partially mix-adjusted


Slide5 l.jpg
Annual house price inflation derived from mix-adj Land Registry data, England & Wales, Jan 2001-Mar 2003


Survey of mortgage lenders l.jpg
Survey of Mortgage Lenders Registry data,

  • 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 l.jpg
Survey of Mortgage Lenders Registry data,

  • 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 l.jpg
Benefits of new methodology Registry data,

  • 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 l.jpg
Selecting the preferred model for price estimation Registry data,

  • 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 l.jpg
The main explanatory variables Registry data,

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 l.jpg
Main features of the new index Registry data,

  • 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 l.jpg
Launch of the new index Registry data,

  • 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 l.jpg
Planned releases Registry data,

  • 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 l.jpg
Further issues to consider Registry data,

  • 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


Ultimate vision development of an index based on land registry data l.jpg
Ultimate vision: Registry data, development of an index based on Land Registry data


A new official monthly house price index david wall odpm16 l.jpg

A new, official monthly Registry data, house price indexDavid Wall, ODPM


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