Saturday, November 29, 2008

Could house prices actually be climbing?

About that debate between Rory Robertson and Steve Keen, the audio is here. HT: Keen


Widespread claims that house prices are falling seem to fly in the face of statistical evidence, with Australia's most accurate price index showing gains in each of the last two months and Melbourne prices climbing the fastest in eastern Australia.

The RP Data-Rismark Hedonic Property Value Index measures changes in the prices of houses that are actually similar. Other indexes lump sales together, meaning that if more expensive houses are sold in one month than another overall prices appear to rise or fall even though the price of each house may not have changed.

By comparing, for example, the price of an unextended 3-bedroom house in Glenroy only with earlier sales of unextended 3-bedroom houses in Glenroy the index is designed to give a truer picture than those produced by the Bureau of Statistics and real estate organisations.

The index suggests that like-on-like prices climbed 0.2 per cent in September and a further 0.4 per cent in October. Melbourne prices slipped 0.3 per cent in September before jumping 1.4 per cent in October, a performance better than that of any other eastern states capital...

RP Data's head of research Tim Lawless said he believed "doom and gloom merchants" had misunderstood the property market.

“It appears Australian property values have proven to be remarkably resilient despite multiple interest rate hikes in early 2008 and the effects of the credit
crisis,” he said.

The improvements are in line with figures released by the mortgage broker AFG which says its October home loan volumes were the strongest since November 2007, climbing by 18 percent in one month.

Most of the price increases in Melbourne took place in the price of houses. The price of units grew more slowly.

Perth and Sydney prices are down 5 per cent and 3 per cent so far this year with prices in Adelaide and Darwin soaring 7 per cent and 9 per cent. Melbourne prices climbed 1 per cent.

Reserve Bank credit figures show borrowing for housing continuing to climb, although borrowing for investor housing is growing more slowly than at any time since records were first kept 17 years ago.

Borrowing for owner-occupied housing grew by 9.2 per cent in the year to October, its slowest growth rate in 9 years.

Personal borrowing slipped another 1 per cent in October, its fifth consecutive monthly decline.

"It looks as if consumers are cutting back on borrowing in an attempt to minimise debt," said Commonwealth Securities economist Savanth Sebastian.

"Borrowing for things other than houses is contracting as consumers deleverage the balance sheets in response to economic slowdown and a credit squeeze, said TD Securities economist Joshua Williamson.