GB: Nationwide HPI

December 29, 2016 01:00 CST

Consensus Actual Previous Revised
M/M % Chg 0.2 0.8 0.1 0.0
Y/Y % Chg 3.8 4.5 4.4

The housing market finished 2016 on a surprisingly strong note according to the new Nationwide survey. A 0.8 percent monthly increase in the lender's house price index (HPI) was comfortably above market expectations, the largest of the year and lifted annual inflation from 4.4 percent to 4.5 percent, its first rise in four months.

However, on a quarterly basis, the October-December period saw a 0.7 percent gain, the smallest since the three months ending April 2015 and so still in line with a general cooling in activity. Certainly, recent data on mortgage approvals have pointed to some slowdown in demand but prices continue to be supported by the lack of supply.

The Nationwide expects average house price growth of around 2 percent in 2017 although admits that Brexit issues make the projection even more uncertain than usual.

The Nationwide House Price Index (HPI) provides house price information derived from Nationwide lending data for properties at the post survey approval stage. Nationwide house prices are mix adjusted; that is, they track a representative house price over time rather than the simple average price.

Home values affect much in the economy especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. During the first half of this decade sharply rising home prices boosted how much home equity households held. In turn, this increased consumers' ability to spend, based on wealth effects and from being able to draw upon expanding home equity lines of credit.

Although the Nationwide data are calculated similar to the Halifax method Nationwide substantially updated their system in 1993 following the publication of the 1991 census data. These improvements mean that Nationwide's system is more robust to lower sample sizes because it better identifies and tracks representative house prices. Historically, the data go back to 1952 on a quarterly basis and 1991 on a monthly basis.

Over long periods the Halifax and Nationwide series of house prices tend to follow similar patterns. This stems from both Nationwide and Halifax using similar statistical techniques to produce their prices. Nationwide's average price differs because the representative property tracked is different in make up to that of Halifax.