Aus­tralian House Prices down 10% from Peak

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There are sev­eral providers of sta­tis­tics on Aus­tralian house prices, but only one that doesn’t have a vested inter­est in the direc­tion house prices actu­ally move in: the Aus­tralian Bureau of Sta­tis­tics. So despite the crit­i­cisms of this series—that it’s based on detached dwellings only, based on median sales data, too infre­quent, not adjusted for “hedo­nic” dif­fer­ences between houses, etc., it’s the only one I trust.

Click here for data in Excel: Debt­watch; CfESI
Click here for more data in Excel: Debt­watch; CfESI
Click here for this post in PDF: Debt­watch; CfESI

Chris Vede­lago had a very nice piece about how con­fus­ing the var­i­ous com­mer­cial house price sta­tis­tics are:

The Real Estate Insti­tute of Vic­to­ria said the city’s median house price rose 0.9 per cent in the March quar­ter. Except that, accord­ing to RP Data-Ris­mark, it fell 1 per cent. Aus­tralian Prop­erty Mon­i­tors, which is owned by Fair­fax, believes prices rose 1.6 per cent in the three-month period. Residex, on the other hand, esti­mates val­ues fell 1.9 per cent… (“Con­fused about the mar­ket? We all are”, The Age April 29)

I’m happy to ignore these numbers—and even more so the spin doc­tor­ing that goes with them. The ABS num­bers are in, and they show a 1.1% national fall over the March quar­ter. Syd­ney house prices fell 1.8% accord­ing to the ABS, whereas Aus­tralian Prop­erty Mon­i­tor alleged they rose 1.4%—the lat­ter being the basis for Andrew “Always Look On the Bright Side” Wilson’s lat­est piece “Con­fi­dence rises as prices bounce back” (SMH April 28). Yeah, right.

Aus­tralian House prices have now fallen 6.1% from their peak, and have been falling for 21 months, which is the longest down­turn in nom­i­nal prices ever recorded by the ABS—the pre­vi­ous longest being the 12 months from the begin­ning of the GFC (which was ter­mi­nated by my favourite gov­ern­ment pol­icy of all time, the First Home Ven­dors Boost).

Fig­ure 1: Nom­i­nal house prices have fallen 6.1% since June 2010

I’m sure the usual spruik­ers will come out with why this is now the bot­tom, and it’s a good time to buy, and there wasn’t an Aus­tralian house price bub­ble, and the short­age will drive up prices, and… So let’s put the cur­rent data in the con­text of the burst­ing of acknowl­edged over­seas house price bub­bles.

Firstly the infla­tion adjusted data: in real terms, house prices have now fallen 10% from their June 2010 peak, and are back to a level they first reached in late 2007.

Fig­ure 2: Real house prices have fallen 10% since June 2010

Now let’s com­pare the Aus­tralian expe­ri­ence to date with the Japan­ese and US experiences—where no-one, not even Alan Greenspan, denies that there was a hous­ing bub­ble. The Japan­ese bub­ble peaked in June 1991; the US bub­ble peaked in in May 2006; and Aus­tralian house prices peaked in June 2010. Fig­ure 3 shows the three declines from the peak, and while the Aus­tralian expe­ri­ence so far is clearly bet­ter than the USA’s, it’s only a whisker bet­ter than the Japan­ese expe­ri­ence to the same date after the peak.

Fig­ure 3: Com­par­ing Japan­ese, US and Aus­tralian house prices from their peaks

Any­one who takes com­fort from that should also con­sider the longer term perspective—see Fig­ure 4.

Fig­ure 4: The long term pic­ture for Japan and the USA

The motive force behind Australia’s bub­ble was the same as in the USA and Japan: accel­er­at­ing debt drove ris­ing house prices dur­ing the boom. Now in both those coun­tries, decel­er­at­ing debt is dri­ving house prices down. The same pat­tern applies in Australia—see Fig­ure 5 .

Fig­ure 5: Mort­gage accel­er­a­tion dri­ves change in house prices

Don’t take heart from the uptick in accel­er­a­tion at the end of the series there: for that to be sus­tained into the future, ulti­mately Aus­tralian mort­gage debt would need to start ris­ing (com­pared to GDP). But mort­gage debt grew more rapidly here and reached a higher peak than in the USA (see Fig­ure 6); the odds that it will rise again are slim.

Fig­ure 6: Aus­tralian mort­gage debt exceeded the USA’s

And even though the actual level of mort­gage debt is still ris­ing, it’s doing so at the slow­est rate ever recorded by the RBA (see Fig­ure 7).

Fig­ure 7: Annual growth in mort­gage debt (with series break in 1991)

The odds are that the rate of decline will accel­er­ate in the next year—since as Leith van Onse­len pointed out yes­ter­day, many Baby Boomers are rely­ing on ris­ing house prices to secure their retire­ments. Now that house prices are falling, and have been doing so for almost 2 years, many of these Boomers—74% of whom earn less than $80,000 a year, with the aver­age investor los­ing over $9,000 a year on these “investments”—could decide to get out rather than con­tinue to absorb losses. The unwind­ing of their lever­aged posi­tions could push mort­gage growth below zero, and of course accel­er­ate the house price fall.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Thanks Jeff,

    Unfor­tu­nately I don’t know that. It’s use­ful data though–the sort of thing I’d like to collect–but I haven’t had time to do so. Hope­fully the behind the scenes changes we’re mak­ing to this blog–which will turn up in the next cou­ple of months–will enable us to auto­mate col­lect­ing stats like that.

    Please keep us up to date with what you find.

    You might also find that my good mates at Pros­per Australia––have their fin­gers on this stuff.

  • Jef­frey Lam

    Hi Steve,
    I’ll cer­tainly keep you up to date if I find any­thing.
    I’m look­ing at Pros­per Australia’s site now. (BTW you omit­ted the .au but I man­aged to work that out)

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  • John Like­sPri­vacy

    Hi Steve,

    The best thing to do with your data series on mort­gage demand and house prices is to apply empir­i­cal mode decom­po­si­tion on each series, and see if any of the IMFs are cor­re­lated. EMD is much bet­ter than FFT for series that are either non-lin­ear or have dura­tion mis­match, and it sounds like your data is both.


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