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Summary
UK national newspaper the Financial Times publishes monthly house price figures, called The FT House Price Index. This aims to be the most comprehensive and up to date guide to property prices as it takes into account information from a raft of sources. The results are seasonally and mix adjusted by research and analysis firm Acadametrics.Data
Sources the Financial Times (FT) House Price Index uses include the Land Registry's House Price Index and what the FT calls the "Index of Indices", which includes house price figures from the Halifax, Nationwide and Department of Communities and Local Government. This enables it to take into account transactions that have not yet been reported to the Land Registry.Method
The FT House Price Index adjusts the data seasonally and uses mean-variance quadratic optimisation in order to produce the optimal forecast weights. The starting point is the Land Registry data, and each of the other indices is taken as a forecast of the Land Registry reports.Acadametrics undertakes a statistical analysis of the performance of the major mortgage-based indices to detect any bias or inaccuracies; this is done by measuring the indices against actual house price growth rates as provided by the Land Registry. Then, the extent to which each index contributes to a combined index is examined. On the basis of this examination, Acadametrics forms "optimal portfolios", unbiased and with minimum variance, and verifies the results.
Disadvantages
- It is only as robust as the figures it collects. Some will be out of date, such as the Land Registry and the Department of Communities and Local Government, while others such as those from mortgage lenders do not include transactions without a mortgage
Advantages
- This is a useful indicator of the state of the house price market as it combines the accuracy of the Land Registry with the up to date figures from mortgage lenders
- The index also ensures that factors such as size of a house, local variations and seasonal differences in the property market are taken into account
Verdict
The Acadametrics - FT House Price Index is "a minimum risk and unbiased forecast generated as an optimal portfolio of existing forecasts" (Briscoe, 2004). It is therefore useful to resolve disputes between the other major house price indices. Its accuracy and timeliness make it a valuable addition to the number of house price indices available.
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