Previous posts argued that UK house prices were supported by the high level and growth of rents and would probably continue to defy bearish predictions. The “best” value- and volume-weighted measures are the LSL Acadametrics and Land Registry indices, because of their larger sample size and inclusion of cash transactions*. These rose by 3.0% and 0.4% in the 12 months to June and May respectively.

The first chart updates a comparison of five house prices indices, rebased to their respective 2007-08 peaks and seasonally adjusted. The LSL Acadametrics index was only 3.3% below peak in June. Its resilience is confirmed by the Office for National Statistics (previously Department of Communities and Local Government) index, which is also value-weighted and was 3.9% lower in April.

These indices, of course, give greater weight to top-end strength. The volume-weighted Land Registry index, by contrast, was 11.4% below peak in May, though – as noted – has moved sideways over the past year. Its message is confirmed by the Nationwide index, with a shortfall of 12.4% in June, but not the HBOS index, which is down by 18.6%. The HBOS measure has displayed a downward bias relative to the other two volume-weighted indices in recent years, suggesting caution in its use (and explaining its popularity among housing market bears).

Within a larger picture of stability, house prices may soften modestly during the second half of 2012, based on a recent fall in mortgage approvals – second chart.

*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.