Not for the first time, a gulf has opened up between house price indices. This morning, Nationwide reports that average prices fell by 0.1 per cent in May (following a surprise rise of 0.4 per cent in April), taking annual house price inflation down to minus 3.4 per cent. That will surprise no-one, given the rise in interest rates over the past year. Except, that is, for the fact that the Office for National Statistics (ONS) reported last week that average prices are up by 4.1 per cent over the year.

On the one hand we appear to be entering a slide, which could easily turn into a crash. On the other, the market ploughs on ahead, shrugging off the negative influence of rising interest rates and making people wonder whether the UK housing market will ever fall.

It would not be surprising if recent optimism among people who like high house prices turns out to be a brief affair

The two indices surely can’t both be right, so what is going on? There are important differences between the two indices. The Nationwide index is based on data from mortgage approvals, while the ONS index comes from actual, completed house sales. The pool of sales from which Nationwide compiles its data is very much smaller and there is no guarantee that all the housing sales on which it is based actually went through to completion.

The ONS index ought to be better as it is based on all housing sales, not just on properties being bought with the aid of a mortgage from Nationwide. However, it also runs at least three months behind the Nationwide index.

While the latest Nationwide update uses mortgage approvals made in May – for sales which should go on to complete within the next month or two – the latest ONS report uses sales which were completed in March. In other words, housing sales from last spring, when the Bank of England’s base rate was still less than one percent, have now dropped out of the Nationwide index, but not yet out of the ONS index.

The other thing to note is that sales volumes are very low at the moment. That causes problems for all house price indices, but especially for the Nationwide index because it has less sales data to work with even at the best of times.

It should not come as a surprise, however, if a recent flurry of optimism among people who like high house prices turns out to be only a brief affair. Two months ago Nationwide was expecting the Bank of England base rate to peak at 4.5 per cent this autumn and then to be reduced, reaching 4 per cent by the end of 2024. Recent inflation data, showing the Consumer Prices Index falling at a much slower rate than expected, has caused it to change its mind. It now expects rates to peak at 5.5 per cent and to remain over 5 per cent until the end of next year. That is not good news for the housing market.