Winston's Charts

I've been messing around with excel a lot recently trying to get charts to auto update direct from ABS and RBA web servers. Once I get the VBA coding tweaked, it should be a nifty tool to apply to any combination of stats time efficiently.

There's a lot of information buried in stats (much which the govt and others would prefer stayed that way.)

I'll attempt to update the charts below regularly by overwriting them, and thereby avoid a stream of redundant charts.

The fundamentals will be evermore important over the next few years I think.


ASX 30 DAY INTERBANK CASH RATE FUTURES IMPLIED YIELD CURVE
This is a multiple plot of the yield curve put out by the ASX. It is used to predict the future direction of interest rates, including those for resi property. It's up trend through the first half of 2009 has so correlated with fixed rates. Though keep in mind there's a lot of volatility in yield curves the further they extend into the future.





Australian Bills, Notes, and Bond Yields.
These are the rates or yields on selected Treasury notes and bonds.
Together, they represent a yield curve of sorts. Note short term yields were higher than longer term for many months leading up to the GFC, which represents an inverted yield curve. Since October08, the inversion has been correcting quite severely. Some of this move might indicate the increasing demand for capital around the world, and the higher risk owners of capital associate with the medium and long term outlook.





Bank Housing Rates.
These are the indicator rates for bank sourced housing loans - the std variable, discounted variable, and 3 yr fixed.

Note the fixed rate was tracking the discounted variable rate closely from late 2004, which correlated with the yield curve inversion. This relationship changed abruptly during Feb-Apr 09.




GDP annual trend - total and per capita - % change and $millons.
There's an interesting relationship in the chart below between total GDP and GDP per capita. Since the 1970s, Individual Aussies on average, have become less productive. Total GDP has averaged 3% pa growth, while per capita is only a little over half of that.

This might be due to any number of things- ageing popn, more time spent in education, smaller portion of full time workers, migrants not contributing as significantly to gdp as they traditionally have. It could also mean that the growth of Australia's greatest export earners (primary production) are not matching the rate of population growth. In light of finite resources, this restriction is probably quite inelastic.

The comparative slope of each curve make the relationship very clear, though I wouldn't expect this trend to be given attention in the mainstream media or by govt. It can only mean an ongoing erosion of public service delivery, such as infrastructure, education, law enforcement, and public health.





The next charts I'll try to do may include economic indicators like housing, retail, car sales, and balance of payments. The ABS has charts for this stuff scattered around, but they don't usually display trends over 2-3 years, and not stacked for easier comparison.

Kudos to you winston, the charts do give up heaps of information, i will need to think and study such charts for a week before my brain,will ID anything in them, its all a mind set, but i am sure all on SS thank you for your time,

Kudos from me too. Ta!

Hi Winston,

Have a look at the GNI per capita measure...very interesting.

Real Net National Disposable Income

This is a better measure of wellbeing than GDP as it accounts for consumption of fixed capital (depreciation), emulates GNP, and adjusts for the terms of trade (diff in movement of export vs import prices).

I've indexed movements since data was collected by the ABS (1985).
The pattern supports the relationship mentioned above between GDP and GDP per capita. i.e. we are not growing wealth at the same rate we are growing the population.

Hi Winston

It would be interesting to see the average age of the population v the RNNDI over time. Given peak earnings occur in midlife the decreasing RNNDI might reflect the demographic changes over the past years.

Cheers and thanks for the charts.

Shane

Great work WW.

I want to see the whole dent chart for Aust.

As we are slightly different the chart would need to include immigrants (age dependent)

Basically the chart is birth rate per year adjusted for immigration



Cheers

Shane and Andy, yes the interdependence of population and productivity are intuitively tight......Dent has some interesting stuff on his site.

On first thoughts, I'd presume productivity is a more fundamental input into the system than population growth or composition.

Most sub Saharan nations have had popn growth in the last 30 years, but are basket cases economically.......while China's popn growth has been slow but economic growth unprecedented. Ireland, Norway, and Luxumbourg demonstrated significant improvements in economic well being unrelated to significant population changes.

Further, consider if a country's popn growth rate is higher than productivity growth (lower GDP per capita), and continues to borrow heavily from overseas (growing current account deficit to gdp ratio), then the country is accumulating debt to finance a lifestyle beyond its means. This is unsustainable and will overwhelm positive changes in the age composition of a country.

In my view, population dynamics have increased significance in developed nations where there is a large public sector and welfare culture. For these economies, if productivity does not grow at the same rate as population, then the quality and quantity of public services delivered per 1000 people has to fall.

Token Funder said:

Hi Winston,

Have a look at the GNI per capita measure...very interesting.

Click to expand...

There you go TF. Similar pattern and scale to GDP derived trend.

WinstonWolfe said:

There you go TF. Similar pattern and scale to GDP derived trend.

Click to expand...

Love your work

These long term time series comparisons reveal some very interesting stuff.
Remember, these figures are for owner occupiers only. They are from the ABS 5609 series which is
TABLE 1. HOUSING FINANCE COMMITMENTS (Owner Occupation),By Purpose: Australia (Number, $000)


some key points from the top chart

- in general, the 1975-1990 churn rate for owner occupiers buying existing homes stayed under 1500 homes per month per million people.

- that rate then found a new average around 1750 during the 90s.

- then it went over 2000 in the noughties, peaking over 3000 in 06-07 before falling under 2000 in Jan 09....from where it escalated back up quickly, presumably helped by the larger FHOG.

- in 1975, construction of new dwellings was 321 per million people, and purchases of new dwellings matched supply fairly closely at 290.

- in the 80s and 90s, new construction began to exceed new purchases much moreso than in the 70s. The most logical inference to explain this is that investors buy the stock OOs don't.

- in the noughties, new construction has floated around 150-250 dwellings per million people per month, which is less than the 1970s.




The above chart is expressed below, as variation from 1975, which is indexed to 1.

major insights:

- the red line falls by 75% after the 70s and finds a plateau there. this line is the purchase of new dwellings by OOs. So it appears it is less common since the 70s for OOs to buy new homes. As mentioned above, investors must be moreso taking on the risk of building new homes, then selling to OOs later.

- the ocre line confirms that churning of existing homes has risen steadily since the 70s.

- the blue line shows construction of new dwellings has fallen from an early 90s high.

this is great stuff WW ... definitely got more 'active' brain cells than I do !

Cheers
Harris

WinstonWolfe said:

Click to expand...

Does this chart go some way to explaining why house prices keep increasing faster than % household income? That is, OO's are churning more and more. That is, buy at affordable price, house prices go up, sell higher, buy higher, etc. etc. The OO loan goes up much slower than the price of the house they are living in.

WW - I'd give you more kudos but have to spread it around..

ILoveProperty said:

Does this chart go some way to explaining why house prices keep increasing faster than % household income? .

Click to expand...

Hi ILP, I think one has to think twice how they interpret these charts.
To reiterate, imo, the chart reveals

- an accelerated rate of existing home churn by owner occupiers from 1999 to 2007. It is possible churn could go up and prices come down, as in when a severe recession forces a lot of dwellings onto the market, or with an ageiing population when more people start to downsize their homes and release capital tied up in a larger house.

- over the same period, new construction trended downwards slightly and OO purchase of new dwellings trended up gently. I suppose it is reasonable to presume this pushed prices up.


If anything, I think these charts are helpful for:

- tracking the interplay of new construction and OO purchases of new dwellings. Convergence these beyond their historical average is telling.

- tracking the scale of changes in sales of existing homes to OOs. Late 07 to 08 saw a 30% drop in sales (to OOs). Such an acute drop has got to hurt the REA industry and put downwards pressure on prices......nevertheless, the scale of the rebound from that drop in recent months is significant, which indicates there's a lot of demand out there still....probably helped by the FHOG.

I will be watching these charts over the next 2 years carefully, to see what effect rate rises ultimately have, and macro changes.....and will update them on this thread from time to time. Keep in mind this data is monthly, so the steepness of any change should be helpful in forecasting price movements early enough to aid investment decisions. Of course, this is national data, and many local markets will lead or lag the national trend. Ultimately, I think the charts track very well what we all believe unfolded in the last 10-30 years. So hopefully, they are another tool to help investors understand supply/demand mismatches and have more confidence in their decisions.

Retail Trade

This is a comparison of monthly retail group raw $ turnover. Note the size of the Christmas spike. I'll have to look at the data more carefully to see what is included in the food sector group, as I wouldn't expect it to spike so severely in December (hard to imagine Christmas drinks, nuts, and turkey could cause it)




Below is seasonally adjusted data indexed to 1983.
Some interesting features:

- compared to other groups, food retail is hardly effected by economic cycles.

- using food retailing as a benchmark, dept store and clothing turnover has not grown at the same rate.....though this doesn't necessarily indicate poor dept store net profits, as they may have cut staff and other costs proportionately, and benefited from higher margins due to cheaper Asian imports.

- cafes and restaurants surge above food when the economy is strong, then fall acutely back. In fact, a good economic indicator could probably be constructed from cafe variance from food, as cafe seems to only get so far above food before it is reined in.

- household goods seem to lag cafe, and not be as acute in their movements.

Trends in growth of various sectors have probably been significantly affected by production efficiencies and export of manufacturing to Asia.

WinstonWolfe said:

over the same period, new construction trended downwards slightly and OO purchase of new dwellings trended up gently. I suppose it is reasonable to presume this pushed prices up.

Click to expand...

Hi WW

If you are this way inclined can I suggest a potentially useful chart? How about new dwelling construction and population growth (in number of people) in each year? This should give a good view of "fundamental" supply of dwellings vs demand for dwellings, regardless of OO or investor ownership. A third line could be average number of people per dwelling if you can find data for that as a sanity check as these three factors "should" be directly related, unless lots of people started living in caravans!

Just a suggestion...

Hey HE, suggest a way. Here's a part of what you suggested....change in resident population (3101.0) versus new dwelling commencements (8750.0). I don't mean to be anal, but commencements obviously excludes dwelling demolitions, so doesn't reflect net new dwellings accurately.

Anyway, an interesting chart in its own right. Some liberal interpretations:

- it appears since the 1995 qtrly peak of around 50,000 dwelling commencements, a new high has not been achieved. This could be a result of less skilled labour, or restrictions in land release and town planning.

- population growth accelerated clearly from 2004. Dwelling commencements stayed flat.




I haven't been able to find average household size figures, but below, I've done something interesting. I originally thought we weren't building enough dwellings for all the growing population.

However, below I've divided cumulative growth in ERP by cum growth in new dwellings. What we get is at least a new dwelling for every 2 residents. That seems like enough dwellings if the accepted average household size is 2.6.

Nevertheless, these figures don't include demolitions, so don't reflect net dwellings. Further, there's no indication of whether these dwellings are 1 bedroom villas in retirement villages or 4/2/2s in the burbs.

Calculating whether there's enough dwellings being built isn't that easy.

Love your work Winston! I must get to work spreading around some kudos!

I agree this is not an easy ask and talking in generalisations is of limited value, however I reckon there are a few things worth considering:

- There have been no major periods of over/undersupply in new dwellings over that time.
- Population growth has only accelerated recently.
- Prices grew through these times in general even though there was less demand for a similar amount of supply.
- With more and more infill / rezonings the restriction in supply from demolitions only restricts supply further, which is a good thing from where I sit.
- So all other things being equal (which, of course, they never are!), the recent population increases can only support either house prices or rents through greater demand.

I would actually go further than this and say the well documented problems with development finance ATM will see new builds fall at a time when population is still (for now at least) growing at above average rates. How this pans out through the rest of the GFC remains to be seen of course.

This pressure must flow through to either prices or rents which is all good from a property investor's POV. I suspect it will continue to be felt in rents in the short to medium term - again because of finance restrictions clamping down the ability for prices to run away. Interesting....

ABS don't have specific figures for total dwelling supply, but Dept of Families Housing etc, produced this derivative. In their appendix, they note there are no direct figures on demolitions, so they have extrapolated using other data.




HE, I agree with your views. I think several factors that make up std of living are falling in Australia.

- GDP per capita is not growing at the same rate as GDP. This is reducing the quality and quantity of services and infrastructure the public sector can deliver per capita. i.e. water shortages in SE Qld due to lack of dam infrastructure.

- The over?focus on preserving the environment and built environment comes at an extreme cost. i.e. compulsory water tanks in SE Qld (due to lack of new dams and popn growth), town planning restrictions limiting supply of new dwellings close to work as in Melbourne.

Basically, we aren't producing enough wealth to build the cities and population many want, while preserving the environment.


Keep in mind though, that although dwelling supply is apparently not keeping up with demand, demand will very likely be stifled by lack of affordability when rates go up.

All this favors people having to form larger households and pay higher rents. I suppose as rents go up, that will creep house prices up but within the constraints of credit availability.

I think any investor should also be planning for what happens when petrol prices begin to climb. It is very likely that the same forces that put upwards pressure on rates will do the same for petrol. That is going to probably adversely effect outer ring demand and drive up inner/middle ring demand even moreso.

Hi WW

You have pulled up some more gold in your data mining activities - well done and thanks!

Don't suppose there's a historical trend from that Dept on that measure is there?

WinstonWolfe said:

HE, I agree with your views. I think several factors that make up std of living are falling in Australia.

- GDP per capita is not growing at the same rate as GDP. This is reducing the quality and quantity of services and infrastructure the public sector can deliver per capita.

Click to expand...

Have to pull you up on this one though. I don't see the relevance of GDP per capita not growing at the same rate as GDP?

As long as GDP per capita is growing, our std of living (theoretically at least - that bit that doesn't just go into inflating property prices! ) and service provision should also be improving - no?

If GDP were going up due to population growth while GDP per capita was going down, then I would see a problem!

BTW when I referred to demand in my post above I was referring to all demand for dwellings - ie tenant as well as ownership demand. I see it as a see saw - when price growth is held down by credit availability in the face of a relative undersupply of new dwellings to house our growing population then that economic pressure will demonstrate itself in the form of rising rents and yields as more tenants compete for not enough properties.

I don't expect nor particularly want price increases but decent rents would be about time!