The Halifax is deliberately underestimating the fall in UK house prices. It has announced an 8.8 per cent fall for the year to July when the actual fall is 10.9 per cent – the first double-digit decrease ever.

The reason is that the mortgage bank’s monthly annual figure is actually an average of the previous three months. The 8.8 per cent “July” fall is calculated by comparing May, June and July this year with the same three months of last year.

So July’s low figure is boosted by the higher figures of the previous two months.

Compare July 2008’s actual Halifax index (574.0) with July 2007’s (644.3) and the fall is 10.9 per cent.

Halifax defends the use of quarterly figures for a monthly index as smoothing out short-term trends. But the trend in the housing market is clearly down, every month. The effect instead is to make a large fall look smaller.

During long-term rises or falls the difference may be small, but when the market turns – as it has in the past year – the figures become positively misleading.

In May, June and July last year prices were rising so the average price was an underestimate while in those months this year prices are falling and the average is an overestimate. The bank has thus compared a too-high 2008 figures with a too-low 2007 average.

Sorry about the maths, but think of it this way. If last year the index during those three months was 98, 99, 100 and this year it was 101, 100, 99 then the quarterly average for the 2007 period is 99 and the 2008 quarterly average is 100 – showing a 1 per cent increase. Yet comparing the figures for July alone – 99 this year against 100 last year, shows a 1 per cent fall.

Conspiracy to boost the property market by a leading mortgage bank or statistical consequence of trying to enlarge the sample? Either way, the country’s top indicator of house prices is significantly wrong.

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