Mortgage acceleration & house price changes—the result

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As I wrote just before the data was released, I expected house prices to rise at a level “either below or barely above CPI inflation”:

The ABS House Price Index Data will published at 11.30am today. My Mortgage Accelerator data indicates that it will show a further rise in house prices—though at an anaemic level of either below or barely above CPI inflation.

In fact, the numbers came out spot on at the rate of CPI inflation over the previous year:

Here’s the chart I published before the figures were released:

The correlation coefficient between these two series was 0.853 before the most recent data; it has now dropped slightly to 0.84.

I’ll publish more on this topic shortly.

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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14 Responses to Mortgage acceleration & house price changes—the result

  1. ken says:

    Everytime I see this happening I wonder if the inevitable downturn will be the shock that overloads the system. Especially so in the US at the moment where at last they have some growth in their economy but mainly due to government debt and a rise in house prices. When the effects flow through to the economy in a year or two and there is a downturn it will probably be the double dip recession.

  2. kalman says:

    Dear Steve,
    You only see 20% decline in real estate prices over 4-5 years, I think it will be closer to 50% in dollar terms, even that would keep real estate more expensive than it’s worth, if one was to buy it with real hard earned money instead of a signature backed by credit that is backed by thin air.
    Also we way see a two tiered economy, one that is based on fraudulent credit money backed by nothing like now and another that is backed by real intrinsic value, such as Gold, Silver, Water, Food. What is your thought on this? Could this co exist or will the Ponzi money collapse all together?

  3. PETER_W says:


    It strikes me that the superimposed graphs indicate that the capital price grows faster than the credit growth over the time period

    It indicates that transaction volumes for given quantities of credit must contract

  4. TruthIsThereIsNoTruth says:


    Other assumptions here include leverage ratio and that house price index change * transaction volume = change in debt which is not quite the case as the house price index is a median and not average value and the relationship between house prices and total transaction volume is complicated and impossible to reflect in a median value.

    That’s the assumptions I am aware of. There are inevitably data cut assumptions which are not immediately transparent also.

    Looking forward to seen the US and Japan comparison.

  5. PETER_W says:


    “…and total transaction volume is complicated and impossible to reflect in a median value…”


    Transaction volume is an absolute number and its down from @ 600,000p.a. to @ 480,000 p.a.

    The graphs, trajectory and the time fram indicate transaction volume will continute to decline

    At the illogical extreme we could have 0.001% credit growth ~ $1 billion new credit and 1 transaction for the year to the lucky 1 only seller with an imputed 9 thousand trillion housing market

  6. TruthIsThereIsNoTruth says:

    PW – it is foolish to rush to assumptions. The relationship underlying the proposed correlation is that the change in debt is a flow of money which given a leverage level is used to purchase housing. In an observation period you will have the total money spent on housing coming from new debt + new equity, from which you can imply the relationship b/w change in prices and debt “accelaration” (personally I don’t like the physics reference but maybe it works for the most general audience). However there is a translation from total money spent on housing to median price, this translation is not a constant and not easy to deduce either. Feel free to call that garbage if you like, but for your own sake get your head around the concepts first, when you do there will be one less foolish human being on this planet.

  7. TruthIsThereIsNoTruth says:

    sorry for my hot headed response. However it would be great if a forum could be used to advance mutual understanding instead of having a quick go at each other or continually driving personal agendas. In that spirit, below is a link to how the abs works out its index. Given that we are observing a correlation, it is an opportunity to understand the underlying mechanics. At a high level the debt accelaration to house prices makes sense. But to understand the details of how it makes sense in practice, first you need to flush out the assumptions.

  8. PETER_W says:


    Sales are 480.000 down from 600,000

    That is a fact

  9. TruthIsThereIsNoTruth says:

    In this context the number can be a statistic or an estimate, which is subtly but significantly different from a fact…

    Fact or not, where are you getting those figures from?

    On a different note I had a thought worth sharing “an economist can no more predict the future of the economy than a biologist can predict what I am going to have for breakfeast tomorrow”.

    There is a public misinterpretation of how forecasts are created and how people who have an effective and participatory connection to the economy make use of the forecasts. Economics’ value does not come from predictions. If this was the case one of my small kids would do as good a job as most. The value comes from a detailed understanding of the underlying mechanisms. The correlation between house price and debt acceleration provides such an opportunity. You can stop at the self fulfilling level and conveniently presume a causation. Or get some insight and advance general knowledge by studying the details without the bias of promoting ones initial proposition.

  10. PETER_W says:


    “In this context the number can be a statistic or an estimate, which is subtly but significantly different from a fact… ”

    What planet are you from?

    These are absolute numbers of transactions, NOT estimates NOT statistics

    Rambeling verbose paragraphs of obfuscation adds nothing!

    The transaction facts data… check RBA… all the states

  11. TruthIsThereIsNoTruth says:

    clearly too subtle for you…

  12. Bhaskara II says:

    An Other Side of the Coin, Savings and Net Income:

    Does any one know why many countries’ house hold saving/disposable income* ratios have been going down together since at least the 1980s? It has been trending to 0% near the years around 2006 from a high the 1980s. This is just before the Financial Crisis.

    Maybe a better question is why did some other countries only go down to 10%. For instance France and Germany? [1, Fig. 12]

    House hold savings ratio approaching zero seems to me to be an indicator previous to the GFC. This seems similar to accounting net income of zero or net loss. At that point some things gonna give. In that case loans would come out of cash savings or liquidating assets, or borrowing more, (if they are not counted in the savings ratio already). Since it is an aggregate for house holds, I’m surprised the GFC happened so near 0%. The savings ratio has been marching down for decades, but when it is 0%, that is a significant number to consider. Also, the Private Sector Financial Balances as a Percent of GNP for three sectors hit zero simultaneously, including the house hold sector. [1, Fig. 11, 12 & 13]

    So, according to these charts the financial balance sheet hit zero at 2003 and then the decreasing savings ratio (akin to Net Income) hit or drop below zero near 2006. [1, Fig. 11, 12]

    So, in the aggregate, financial flows and assets, stock is 0, and then flow became 0. Uh, oh. The bath tub drained out and then it drained faster than the tap supplied water.

    Here is some Aussie data in addition to Figure 13 in reference 1. They give a definition of the savings ratio. [4] After decreasing, some sources claim the ratio is now 10%.

    Again, why did many countries personal savings ratio (net income) decrease to near zero over decades? And, more importantly why did other countries’ with better savings rates like France and Germany been able to save more? (Note: I saw a chart that showed Germany having decreasing house prices. [3])

    *Disposable income, income with the income tax subtracted from it. Similar to personal savings rate.

    1. “The Decline in the U.S. Personal Saving Rate: Is It Real and Is It a Puzzle?”,
    Massimo Guidolin and Elizabeth A. La Jeunesse, Federal Reserve Bank of St. Louis Review, December 2007. —-(Right before the GFC) I read the first page and the last and looked at the charts. Reading those you will figure out why the middle didn’t get read.


    – and –×193.jpg



  13. Bhaskara II says:

    Link to Ref 1.

  14. kalman says:

    Dear Steve,
    If you had spare cash to retire on, would you buy Gold & Silver at current prices, in the hope of hedging against the future 30 years of possible inflation?

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