How do we measure house price inflation?

The purpose of Bank Overground is to share our internal analysis. Each bite-sized post summarises a piece of analysis that supported a policy or operational decision.
Published on 15 February 2019

The ONS/Land Registry House Price Index is now our preferred measure of house price inflation. In part, that is because it has a much larger sample size and tends to be less volatile.

This analysis was presented to the MPC as part of their November 2018 round.

Following its designation as a National Statistic, the ONS/Land Registry UK House Price Index (UK HPI) is our preferred measure of house price inflation.

We prefer UK HPI to other measures because it has a much larger sample size, and tends to be less volatile (Chart A). It is also granular enough to provide reliable disaggregation by region and purchase-type.

Chart A

The UK House Price Index is the most stable measure of house prices

Chart A showing the stability of house price indices

But since the UK HPI is based on transactions data it lags other measures of house prices and is also subject to revision (though those revisions have become smaller and less biased recently, Chart B).

To overcome the longer lag with which UK HPI data are produced, we have developed a nowcasting and nearcasting toolkit for house price inflation to provide us with an estimate of the UK HPI for the current quarter and the quarter ahead.

This employs similar techniques to those used in our GDP nowcast, and draws on data from other measures of house prices including those from Rightmove, Halifax, Nationwide and the RICS Residential Market Survey.

Chart B

Revisions to the UK House Price Index have become smaller and less biased

CHART B showing less revisions over time to the UK House Price Index

This post has been prepared with the help of Hasdeep Sethi.

Share your thoughts with us at BankOverground@bankofengland.co.uk

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