House price bears love the Halifax index, which fell by 2.8% in the year to October to stand 20.6% below its 2007 peak. Its gloomy message, however, is contradicted by four other house price indices, three of which have superior coverage.

House price indices weight together transactions either by value or volume. A value-weighted index (i.e. giving greater weight to more expensive houses) should be used if the focus of interest is the aggregate value of the existing housing stock. A volume-weighted measure (i.e. giving equal weight to expensive and inexpensive houses) is appropriate if the focus is the price of a “typical” house. (Other differences between indices are discussed in a previous post.)

The Halifax index is volume-weighted. So are the Land Registry (LR) and Nationwide measures. The LR index is superior since it uses a much larger sample size and includes cash- as well as mortgage-financed transactions. In contrast to the Halifax measure, it rose by 1.1% in the year to September (the latest available month) and is “only” 10.8% below its peak. The Nationwide index is weaker but its performance since the peak has been much closer to the LR than the Halifax measure – it fell by an annual 0.9% in October for a cumulative decline of 11.8%.

The two value-weighted measures are the LSL Acadametrics and Office for National Statistics (ONS) indices. The former is superior again because it is based on comprehensive LR data, whereas the ONS index uses a mortgage survey. Both measures are up over the latest 12 months – LSL Acadametrics by 2.2% to September and ONS by 2.1% to August – and are just 2.8% and 4.0% respectively below their peaks.

The Halifax index is a comfort blanket for crashistas who presumably sat out the entire housing market boom and now seek redemption by spinning tales of woe. Any analysis that references only this biased measure should be discarded. The true story of recent years is a sustained surge in prices followed by a partial correction and extended plateau. The best volume- and value-weighted measures are 42.6% and 57.5% respectively above their levels a decade ago – not bad after a five-year “bear market”.