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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  • Steve Hum­mel


    Yes. In hinds sight that was an obvi­ously stu­pid move. That doesn’t mean that re-instat­ing Glass-Stea­gall is the be all and end all of re-reform, or that there are not other ways to increase finan­cial sta­bil­ity by cor­rect­ing flaws in the money/accounting sys­tems, acknowl­edg­ing fac­tors in pro­duc­tion that could be mon­e­tized for the good of all or that there isn’t an unnec­es­sar­ily neg­a­tive zeit­geist in the whole she­bang.

  • david mar­cus

    the debt­watch link to the first excel file is bro­ken.

  • I’ll fix it later today–I did that post in a scream­ing hurry as noted ear­lier. I’ve also spot­ted an error in my Case-Shiller index import­ing rou­tine which doesn’t affect this post, but has to be cor­rected for the data. Hope­fully I’ll have that done by tomor­row.

  • RickW

    The RBA weaved its magic on the Aus­tralian econ­omy yes­ter­day. The pop­u­lar press is prais­ing the ben­e­fit of a 0.5% reduc­tion in inter­est:–05-01/stevens-seen-cutting-rate-to-record-by-swaps-australia-credit
    Same com­men­ta­tors are look­ing skep­ti­cally at the banks to see that it is passed on.

    So if the RBA gets its way Aus­tralians will redis­cover their appetite for grow­ing debt — as seems to be hap­pen­ing in the US with sav­ings rate now declin­ing again. 

    There is an inter­est­ing pie chart taken from a US Fed pub­li­ca­tion show­ing the com­po­si­tion of stu­dent loan debt by age:

    I won­der if the over 60+yo group are hope­ful of sell­ing their prop­erty to pay back their stu­dent loans. Maybe they are slow starters and are intend­ing to work till they get in their 90s.

    I don’t think there is a sim­i­lar sit­u­a­tion with stu­dent debt in Aus­tralia — yet. But only a mat­ter of time before HECS recip­i­ents reach retire­ment age.

    At some point, irre­spec­tive of low inter­est rates, the prin­ci­pal has to be repaid.

  • henessy avenue

    Hi, Steve,

    I have always read your argu­ment about hous­ing price bub­ble in Aus­tralia with inter­est. How­ever, even if it is bub­ble, it doesn’t have to “pop”. It can stag­nate while the econ­omy grows, or the air can sip out slowly.

    One data point that turn me toward it is the large gap between hous­ing com­ple­tion and pop­u­la­tion growth Aus­tralia had in the recent years. 

    Is there any rea­son why you think it will “pop”?

  • Bryan Berndt

    Van­cou­ver BC

    If the num­bers are accu­rate we are look­ing at a $128 000, or 10.5% drop in April 2012’s aver­age price, since the Feb 2012 peak. And ~49k drop from March –April 2012, or ~4% drop in price mnth / mnth.

    Van­cou­ver apart­ments, accord­ing to this pre­lim­i­nary data, increased by $465 since end of March 2012 to now. Looks like a down­siz­ing trend, and a move to the east, or where it’s least trend.

    Ques­tion is, what areas is he includ­ing, the whole of RBGEV stats? Or Just Van­cou­ver?

    We will have to wait for the full stats from the REBGV.… or Steve, do you have any idea where more reli­able 3rd party data on Van­cou­ver Real Estate prices might be?

    The only other data I found is attached. It comes from here, and when I cal­cu­lated all of the areas listed, I got a 333k drop avg since March up to April 21st. 

    It did not include all areas on the REBGV MLS, but did include West/East Van, Rich­mond, North Van­cou­ver.

  • Bryan Berndt

    Van­cou­ver BC

    If the num­bers are accu­rate we are look­ing at a $128 000, or 10.5% drop in April 2012’s aver­age price, since the Feb 2012 peak. And ~49k drop from March –April 2012, or ~4% drop in price mnth / mnth.

    Van­cou­ver apart­ments, accord­ing to this pre­lim­i­nary data, increased by $465 since end of March 2012 to now. Looks like a down­siz­ing trend, and a move to the east, or where it’s least trend.

    Ques­tion is, what areas is he includ­ing, the whole of RBGEV stats? Or Just Van­cou­ver?

    We will have to wait maybe for the full stats from the REBGV, or maybe some­one has access here? 

    Steve, do you have any idea where more reli­able 3rd party data on Van­cou­ver Real Estate prices might be?

    The only other data I found here:

    When I cal­cu­lated all of the areas listed, I got a $333,000 drop in aver­age price, since the end of March 2012, to April 21st. 

    It did not include all areas on the REBGV MLS, but did include West/East Van, Rich­mond, North Van­cou­ver.

    What prompted my search­ing, was a report from Garth Turner mid April 2012, on his blog, that prices had dropped 100k on the REBGV MLS.

  • Brian Sto­bie

    I had pre­vously posted my doubts about the appar­ent causal link betwen two data sets in one of the plots. I set up an absurdly sim­ple model using Mat­lab-Simulink to look at appar­ent causal­ity and quickly realised my sim­ple obser­va­tion of lead/lag with a pair of sig­nals was no good. 

    The model com­prised just a sig­nal gen­er­a­tor feed­ing a fixed delay — what could be sim­pler?. This cor­re­sponds to a cause (gen­er­a­tor) and an effect (delayed gen­er­a­tor).

    If you apply a slowly increas­ing ramp sig­nal, the cause clearly leads the effect. This cor­re­sponds to the obser­va­tion of a long time period rel­a­tive to the delay.

    How­ever, if the vari­a­tion is cyclic, the appar­ent cause/effect can be any­thing you like, depend­ing on the cycle period to delay time ratio. When the period is slightly longer than the delay, it looks like the ‘effect’ is push­ing the ’cause’.

    In engi­neer­ing terms the phase delay is pro­por­tional to the input fre­quency, which is a fun­da­men­tal fre­quency-domain prop­erty of a time delay. I knew this, but hadn’t thought it through in this con­text — inter­est­ing.

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  • Lyon­wiss

    @ Steve Hum­mel May 2, 2012 at 12:38 pm

    One advan­tage of Glass-Stea­gall over most other ad-hoc pro­pos­als is that it has proven to be effec­tive in curb­ing spec­u­la­tion over many decades.

  • Steve Hum­mel


    Yes. Its very effec­tive for busi­ness enti­ties. And if we had a div­i­dend and reg­u­lated how much of it went where, like 95% to retail spend­ing or sav­ings and maybe 1–5% to stocks or other non-deriv­a­tive spec­u­la­tion it would effec­tively reg­u­late indi­vid­u­als. With free­dom comes respon­si­bil­ity after all. These kinds of com­mon­sen­si­cal reg­u­la­tions of the financial/monetary sys­tem could keep the vices of eco­nom­ics largely out of effect.

    Another thing to con­sider is how dif­fi­cult it would be for regres­sive forces to over­turn a div­i­dend once it was insti­tuted. Socail Secuirty has sur­vived 80+ years.…and it is re-dis­trib­u­tive. A dis­trib­u­tive div­i­dend steals/taxes no one and lasts a life­time serv­ing the indi­vid­ual more effec­tively and longer while simul­ta­ne­ously elim­i­nat­ing the neces­sity for wel­fare and SS and their respec­tive tax bur­dens at the same time. Its win/win.….except as it impacts the duopoly/triopoly of credit and their largest mar­ket, con­sumer finance. 🙂

  • alain­ton

    Henessy Avenue
    A lot of the year to year pop­u­la­tion changes are due to changes to birth rates, which might affect changes to demand to larger homes but wont affect the require­ment for total new homes directly. That one of many rea­sons why you cant use pop­u­la­tion lev­els alone as a proxy for hous­ing demand, you have to look at house­hold for­ma­tion lev­els & also whether or not they affect stock lev­els (such as peo­ple liv­ing longer reduc­ing stock turnover) or the flow of net addi­tional house­holds. Also dif­fer­ent com­po­nents of demo­graphic change will have dif­fer­ent lags on house­hold for­ma­tion. For exam­ple a baby wont be demand­ing a home of their own for at least 18 years.
    The intere­la­tion­ship is also two way — for exam­ple if house­prices are expen­sive you get more con­cealed house­holds (refusal to leave nesters, cou­ples mov­ing back in with par­ents, peo­ple forced to share etc.)

    It should not be too sur­pris­ing that cor­re­la­tions sur­vive time accu­racy issues for two rea­sons. Firstly it is irra­tional to sit on an exten­sion of credit for two long, you have to pay inter­est on it so you try to put it to work straight way or in hav­ing a mort­gage extended issue the bankers draft on the same day as you exchange con­tracts, which in most coun­tries I know of will be done by your lawyer on the day of sale. If there is vari­a­tion of delays in spend­ing for credit advanced in excess of house pur­chase costs we would expect it to fol­low some kind of power law dis­tri­b­u­tions evening out vari­a­tions. Sec­ondly even aver­ag­ing out paths for change in debt over 1 year there is only so many paths that this could fol­low month to month and again we would expect these to be dis­trib­uted around the straight a to b path in a reg­u­lar way.

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  • Thanks Brian, very nice to have that feed­back about feed­back. I am a scep­tic about the applic­a­bil­ity of con­ven­tional econo­met­ric tools to non­lin­ear dynam­ics, and this is a nice illus­tra­tion of the same.

    Could you send me the Mat­lab-Simulink mod­ules?

  • e2

    Hi Steve,

    I thought I’d let you know your com­pelling graph com­par­ing US, Japan­ese and Aus­tralian house prices was shown by Alan Kohler last night on the 7:00pm ABC News. He did cor­rectly quote you as the source.

  • Thanks e2; Alan rang me yes­ter­day to ask per­mis­sion to do so.

  • Zulu

    Yes, I was very pleased to see your graph on ABC, nice one Alan!

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  • Been Cof­fee

    Hi Steve, enjoy your work. Any chance of a com­par­i­son of the debt pro­files between Japanese,US, and Aus­tralian con­sumers dur­ing each of these defla­tion pro­files? This would pro­vide fur­ther insight into what to expect. It would also serve as a point of con­trast as the Japan­ese are know for there sav­ings rates; hence a lower debt to GDP and debt to income ratios.

  • david mar­cus

    link still bro­ken, and the ABS series is 6416, not 4616

  • Sorry David–too much hap­pened today, tomor­row is a con­fer­ence all day. Will have to leave for the week­end.

  • david mar­cus

    Inter­est­ing to break this down between states. If you look at the ABS data for recent months you can see some con­tin­u­ing to power ahead, eg WA, NT, maybe ACT. But the drop has been in NSW and Vic. More inter­est­ing to me is that NSW has been tread­ing water really for the last 10 years or so com­pared to other states.

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  • Jef­frey Lam

    Hi there Steve. I’m an admirer of your work.
    I’ve just started try­ing to look what is hap­pen­ing with the Aus­tralian prop­erty bub­ble and have been search­ing for data.
    I’ve man­aged to find sta­tis­tics by the Supreme Court of West­ern Aus­tralia on “Civil Prop­erty Pos­ses­sion Appli­ca­tions” here:

    How­ever, I haven’t been able to find stats on this from any of the other states, but I know they are out there some­where, because these peo­ple have the most recent fig­ures:

    Do you know if data from the other states is avail­able online any­where?