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 -



  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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