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boom_and_bust

Halifax And Nationwide Indices

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Hi,

Like some other posters who live near Central London, who anecdotally have seen roughly 10-20% falls in market valuations and properties sitting on the market for 12-18 months so far (I have posted example links before), for Halifax and Nationwide not to be showing at least 5-10% falls has not really stacked up. OK, regionally, other parts of the country are moving differently and different sectors of the market can scew the figures. We know that. So I wanted to dig a bit further.

I emailed (no relpies) then wrote (twice before replies) to both these organisations asking how they come up with their HPI indices. Luckily enough, the daughter did an MSc in Mathematical Modelling, so I was very happy to scrap with them.

Long and short of it. How do you think they come up with figures like YoY 3%? Do you think they take all the mortgages taken out by customers and add them all up, maybe with a bit of seasonal adjustment and market weighting? No! They do not. They make a very small market sampling, less than 20% of their APPROVALS (not mortgages accepted and started - so if a chain cannot move but the approval in principal made, that is included even though no house sale is made). They also reserve the right to vary the mix (the properties chosen for the indice) and quantity of that sampling (vary the seasonal bit and weighting figure) at any stage (Halifax completely revamped it mid way through the year) and they do not lay open the actual models and figures used in each survey for public inspection for transparency and consistency. Nor is it layed open to independent monitoring.

Now, that is neither impartial, rigourous or continous. Basically, I was given some very vague descriptions of the methodogies with plenty of small prints disclaimers throughout the paper saying "we reserve the right to vary methodology at any time" and "The society cannot be held liabile for statistical innacuracies within indices" etc., etc.,

Now, you try purchasing any form of share or currency related investment and see the rigourous compliance and wording trusts, banks, etc., have to undertake to sell to the public. With housing, it is like Dell boy going around the back of the lockup to fix you up with a cushdy investment.

So, my next letter is to the Financial Services Authority with my views and correspondence. I don't hold out much hope of getting a sensible reply but I'll let you know how it goes. Cleaning up the industry is a better hope of ending the boom-bust cycle for Gordon next time around I am reckoning.

Boomer

Edited by boom_and_bust

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theres a nifty section somewhere on this site with a lot of news clippings from the last 89/90 crash that offer much supposrt.

they argued and announced a turnaround every other day as houses re-bounded up and up and all the way right down to the bottom of the market. all spin - even back then.

its very reassuring.

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Hi,

Like some other posters who live near Central London, who anecdotally have seen roughly 10-20% falls in market valuations and properties sitting on the market for 12-18 months so far (I have posted example links before), for Halifax and Nationwide not to be showing at least 5-10% falls has not really stacked up. OK, regionally, other parts of the country are moving differently and different sectors of the market can scew the figures. We know that. So I wanted to dig a bit further.

I emailed (no relpies) then wrote (twice before replies) to both these organisations asking how they come up with their HPI indices. Luckily enough, the daughter did an MSc in Mathematical Modelling, so I was very happy to scrap with them.

Long and short of it. How do you think they come up with figures like YoY 3%? Do you think they take all the mortgages taken out by customers and add them all up, maybe with a bit of seasonal adjustment and market weighting? No! They do not. They make a very small market sampling, less than 20% of their APPROVALS (not mortgages accepted and started - so if a chain cannot move but the approval in principal made, that is included even though no house sale is made). They also reserve the right to vary the mix (the properties chosen for the indice) and quantity of that sampling (vary the seasonal bit and weighting figure) at any stage (Halifax completely revamped it mid way through the year) and they do not lay open the actual models and figures used in each survey for public inspection for transparency and consistency. Nor is it layed open to independent monitoring.

Now, that is neither impartial, rigourous or continous. Basically, I was given some very vague descriptions of the methodogies with plenty of small prints disclaimers throughout the paper saying "we reserve the right to vary methodology at any time" and "The society cannot be held liabile for statistical innacuracies within indices" etc., etc.,

Now, you try purchasing any form of share or currency related investment and see the rigourous compliance and wording trusts, banks, etc., have to undertake to sell to the public. With housing, it is like Dell boy going around the back of the lockup to fix you up with a cushdy investment.

So, my next letter is to the Financial Services Authority with my views and correspondence. I don't hold out much hope of getting a sensible reply but I'll let you know how it goes. Cleaning up the industry is a better hope of ending the boom-bust cycle for Gordon next time around I am reckoning.

Boomer

Boomer,

Very interesting.

What I've never understood is how they take a deposit into account.

Obviously, if you've got a small deposit you're going to need to borrow more.

e.g. £100,000 house with a 10% deposit will require a £90,000 loan

£100,000 house with a 5% deposit will require a £95,000 loan

So, by their method, the house appears to be £5000 more in the second example. In an environment of higher and higher LTV, HPI will appear to be going up when actually it's the loan that's increasing, not the house price.

Any ideas ?

Cheers,

spiv.

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Boomer,

Very interesting.

What I've never understood is how they take a deposit into account.

Obviously, if you've got a small deposit you're going to need to borrow more.

e.g. £100,000 house with a 10% deposit will require a £90,000 loan

£100,000 house with a 5% deposit will require a £95,000 loan

So, by their method, the house appears to be £5000 more in the second example. In an environment of higher and higher LTV, HPI will appear to be going up when actually it's the loan that's increasing, not the house price.

Any ideas ?

Cheers,

spiv.

Don't Haliwide use the valuation from their survey? As they always do a survey before offering a mortgage. Hence it doesn't matter what deposit you have, they use the agreed sale price (if their valutation approves it).

Secondly, Halifax and Nationwide indices are pathetic. They are not transparent like other indices (e.g. land reg).

The problem I fear Boomer, is because the Haliwde have a disclaimer you will get no-where. It would be better writing to all the media organisation with your findings. So they inclose these findings with every report - but that aint going to happen!

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interestingly if you look at the Halifax Economic Factbook available on the website houseprices did not fall much in 'the great crash' of the early 90's. The figures go

Nominal Real

1989 +21% +12%

1990 -1.3% -9.8%

1991 -1.4% -6.9%

1992 -3.8% -7.2%

1993 -2.5% -4.0%

1994 +2.5% 0.0%

This is clearly at odds with many people's experience. As Dr Bubb observes some of this could be due to home improvements etc that people do, which flatter the index. IE if you spend £20K adding a loft conversion, but see no increase in value, you can probably assume your house would have fallen by at least £20K if you had not done the improvement, and this does not show up in the index.

Alternatively, people are extrapolating from their own experience to make generalisations on a national level. Eg My neighbours house fell in value by 40%, therefore everyone's did.

Plus there is also the issue that transactions fell due to market conditions. IE people who would have had to recognise a loss of 40% of the value of there home, took their home of the market and chose not to sell.

Anyway, index probably should not be compared with an equity index for instance FTSE 100 for all this reasons

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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