ABS says house prices have fallen

[Tehanu]

Yes, I am sure there will be a bit of a "What? That's not what the media says!"

That's because the media only talks about the preliminary results.

The preliminary results get revised twice as more concrete data comes in. Actually the size and sign of the revisions provide useful information. I suspect the ABS (like most similar bureaus) use trend or historical data to modify the preliminary results while waiting for the full data to come in. The magnitude of the revisions might indicate turning points.

The first revision to the September 2010 quarter house price index have reduced it from +0.1% to -0.3%. The March 2010 and June 2010 quarters were revised down between the preliminary and final revision by -1.4 percentage points and -1.3 percentage points respectively. So assuming the same level of revision occurs for the September 2010 quarter the final result will be a decline of -1.3% in prices for the September 2010 quarter.

Large negative revisions over the last few quarters seems to be in all capitals. Including Canberra BTW which seems to be regarded as the "safest" area because of its large public service.

EDIT: Don't post before morning coffee so can get year right!

 

[Propertunity]

..... So assuming the same level of revision occurs for the September 2009 quarter the final result will be a decline of -1.3% in prices for the September 2009 quarter.

So you mean to say that for someone holding a modest $2M property portfolio, that it just might go down by $26,000? ........gee, thanks for the warning

You'd also better tell that purchaser that paid $800K for a termite dump:
http://www.news.com.au/money/property/for-termite-dump-with-no-floor/story-e6frfmd0-1226000821408
and the 4 other people he was bidding against.

 

[VYBerlinaV8]

This good news, for a couple of reasons:
1) The market is settling and taking a breather. Even on average, we're not talking large drops here
2) I'm pretty sure my IPs haven't fallen much in value (rents still climbing rapidly), indicating that my DD is paying off.

 

[evand]

The next round of results will show wide spread falls. They take a while to come through as you guys well know.

And Prop, you know that Annandale property is not indicative of the market. Not even the inner west market. Why do you keep trying to make a point with it?

BTW: Hows business?

VYBerlina, where are rents 'climbing rapidly'? Thats called cognitive dissonance.

 

[VYBerlinaV8]

The next round of results will show wide spread falls. They take a while to come through as you guys well know.

I suspect you're right, but what will be interesting will be to see the magnitude of the falls, and the underlying factors that make up those figures.

 

[Tehanu]

So you mean to say that for someone holding a modest $2M property portfolio, that it just might go down by $26,000? ........gee, thanks for the warning

You'd also better tell that purchaser that paid $800K for a termite dump:
http://www.news.com.au/money/property/for-termite-dump-with-no-floor/story-e6frfmd0-1226000821408
and the 4 other people he was bidding against.

That is a valid point to make.

What is more interesting though to me is the magnitude of the revisions and the spate of negativity. The last spate of negativity (consistent negative revisions over cities and time) was in 2008 and the magnitude of those revisions (-0.8% at most) were nowhere near the magnitude of the current revisions. The only revision the same magnitude was the +1.4% revision for the March 2009 quarter which probably coincided with the First Home Buyer's Boost.

The reason why large revisions are interesting is because of them saying that the historical assumptions the ABS are using are becoming less valid. Of course the large drops in sales volumes probably aren't helping either.

Of course the current ABS house price index only goes back to June 2005 quarter so it is difficult to tell whether these revisions are large compared to data before then.

 

[Propertunity]

And Prop, you know that Annandale property is not indicative of the market. Not even the inner west market. Why do you keep trying to make a point with it?

I'm not trying to make a point with that particular property, it is just one we were recently discussing, although there are many similar examples.

I still maintain that you can't make broad sweeping statements about "house prices falling", when clearly some house prices in some areas are rising.

BTW: Hows business?

I can honestly say that we have never been busier. Look as BAs we cherry pick the best properties in the higher performing suburbs, so we are always going to run up against stiff competition - and we do. So perhaps what we experience is not indicative of the rest of the market as a whole.

Thanks for the addition to my vocabulary on the term "cognitive dissonance" - I had to go look it up . I shall have to use it on some selling agents on the week-end and see how many puzzled or blank looks I get

 

[evand]

Cognitive dissonance is a great concept. I came across it a lot when i lived on the central coast. Most people up there love to criticise Sydney and say how wonderful life is on the central coast. they only say that because they have been priced out of Sydney and couldn't live here in a fit.

I couldnt stand the place to be honest. And i was born there.

Moving on, for every 100 properties sold there will always be one or two gooses (geese?) willing to buy over the odds at the top of the market, particularly in a trendy suburb. As an ex agent and current BA you would know that.

To use those one or two purchases as examples of a non falling market is totally misleading.

 

[Propertunity]

To use those one or two purchases as examples of a non falling market is totally misleading.

There are many more than one or two examples evand

I'd rather look at the YOY trends rather than month to month or Qtr to Qtr to determine if the market is rising, falling or flatlining. Meanwhile I will just observe on the ground what happens week to week and make my own judgement calls. Cheers.

 

[charlieandkath]

There are many more than one or two examples evand

I'd rather look at the YOY trends rather than month to month or Qtr to Qtr to determine if the market is rising, falling or flatlining. Meanwhile I will just observe on the ground what happens week to week and make my own judgement calls. Cheers.

I'm with Propertunity on this one. Year on year or 5 years on 5 years or 10 years on ten years much better.

Rents in Coogee Sydney going up rapidly. Ours recently went from 475 to 520 per week. About a 9% increase.

 

[Tehanu]

On a further note, I expect the ABS' and (everyone else's) housing price data to become increasingly less reliable as time goes on. This is due to the crash in liquidity (i.e. sales volumes). The floods won't help but it would be more the increasing illiquidity that hurts the data.

What I find ironic though is that if the Government actually had reliable, timely housing price data they probably won't slash the budget aiming at middle class welfare as they are likely to do in May.

 

[devo76]

So what you guys are telling me is thaty property markets sometimes take a breather or even step back a bit from time to time.

Why didnt someone tell me
This was not explained to me.............Actually i take that back

Its called a cycle. Yep i have read that somewhere.... Disregard.....

All crap aside i do think its funny how when prices continue to move up people call it unsustainable but when they take an expected breather people call it a crash or atleast a reason to avoid property.
If people made there choices based on a 1-2 year window things would be a lot more dicey.
Time smooths these bumps out.
Would i buy my first IP or PPOR now....... Yes for the right price or right house.

Just my 2 cents again.

 

[Aaron Sice]

1.3%?

that's fantastic - especially after our last boom where my properties doubled and tripled in value.

some crash, huh?

 

[hobo-jo]

Would i buy my first IP or PPOR now....... Yes for the right price or right house.

So would I. Let me know if you are aware of any vendors selling for 30% under market value...

 

[rugrat]

After the growth Canberra has seen in the past few years, it is not surprising the market has halted and even fallen a bit. It is impossible to sustain that kind of growth at that rate forever without any pause in the market. I think its important to look at particulars too though. Which suburbs? what types of properties? etc. Because I know that growth in my PPOR and even my IP have now slowed significantly almost to a holt, but there hasn't been a drop - but that is the entry level market. The more expensive properties (ie above the 500k mark) I hve seen a drop, but it is dependant on suburb.

 

[wobbycarly]

After the growth Canberra has seen in the past few years, it is not surprising the market has halted and even fallen a bit. It is impossible to sustain that kind of growth at that rate forever without any pause in the market. I think its important to look at particulars too though. Which suburbs? what types of properties? etc. Because I know that growth in my PPOR and even my IP have now slowed significantly almost to a holt, but there hasn't been a drop - but that is the entry level market. The more expensive properties (ie above the 500k mark) I hve seen a drop, but it is dependant on suburb.

Which one? Sorry, couldn't resist.

 

[devo76]

So would I. Let me know if you are aware of any vendors selling for 30% under market value...

Will do buddy. I'll also let you know when one of my tennants move out because it sounds like you might be renting for a while.

 

[Tehanu]

Just to clarify something - even with the revised September 2010 quarter results not all cities actually started falling in price. And actually looking more closely, the September 2010 revision actually weren't as uniformly negative as the ones in the June 2010 and March 2010 quarters. Some cities were actually revised up in the first September 2010 revisions.

The September 2010 revisions which drove the weighted average into negative territory are:

Melbourne - still growing in the September 2010 quarter but with growth dropped from 2.7% to 1.0%.

Perth - growth of 0.4% dropped to -1.8%.

Darwin - growth of 0.3% dropped to -0.5%.

Those in falling prices territory in 1st set of September 2010 are:

Sydney
Brisbane
Adelaide
Perth

Those in falling prices territory with the final June 2010 results are:

Perth
Hobart
Canberra

What's funny though is in both the June and September quarters, Perth was originally growing at 0.4% before it got smashed by big negative revisions. I note this because I remember the disbelief accompanying those initial 0.4% figures because of the well known horrible state of the Perth housing market. Looks like the critics were right about the ABS' Perth data. Oh and it looks like they didn't improve for September. In fact they got worse! Hobart and Canberra experienced really big negative revisions in the June quarter (-2.5% for both) which smashed them from growth to price falls and now in the 1st set of September 2010 revisions were revised up from price falls to growth. Actually I think sales volumes have dropped at lot in Tasmania and the ACT which could explain the extreme volatility in already small markets.

I love this. The results are so bizarre, so unreliable and so variable (especially in the smaller markets) that who the hell knows what's going on now?

The people at the ABS must be pulling their hair out.

Basically everyone, we are now operating in an information vacuum. Meh, this is Australia. Timely, reliable, disaggregated, free of commercial interest, public and freely available collection of important information is something we don't do in Australia. We're a land of "she'll be right mate" and cozy behind doors relationships. Oh and building on well known flood plains without making contingency plans for when they well, flood. Yes, sure. Let's approve a single story house in a low lying area that is known to flood. She'll be right mate. Good planning is something we don't do either. Bad planning with lots of red tape and busywork which just makes things worse but makes it looks like we're doing things and raises government revenue however we do a great deal of.

Which is why I said I will find it horribly ironic that if due to this lack of concern for information collection and risk management the Government and other bodies make horrible mistakes at crucial points like slashing middle class welfare and raising utility rates in the next couple of months. Oh the irony.

Sorry, that's just a long standing gripe I have. I don't blame the ABS though. They have serious resource constraints as it is.

 

[Tehanu]

Actually looking at the November 2005 discussion paper on how the current housing index is derived, it looks like:

- The ABS initially relies on loans information from financial institutions.
- Then as more reliable information from the valuer-general (the price actually registered with the state) comes in it revises its results. The final result is made up only of VG data.
- The prices are based on exchange of contract date.
- The results are stratified in each city with the main stratifications being socio-economic indicators, % of three bedroom houses and geographical location.

The real question then when you have large revisions is why is the loans information given by the banks different from the values registered with the valuer-general?

According to the paper, early results from the VGs are always biased downwards because cheaper properties settle quicker.

The data from mortgage lenders is always biased upwards (no explanation why).

However that would occur in each quarter.

The mortgage lenders data doesn't always come with exchange dates. Hence the ABS uses models to guess at the exchange dates. Now, in housing slow downs the buying process tends to become more protracted as there is difficulty with financing and with financing falling through. I guess in a housing surge the opposite effect would occur. Getting the settlement dates in the mortgage lenders data wrong at significant turning points could explain increasing divergence between lender data and the final price registered with the VG.

The leading indicator data is weighted according to value within cities. That is the preliminary results reflect more accurately the activity on the higher end of the market than the lower one. That could be another source of revision. Hey that could explain Perth. The early results could reflect all the mining millionaires buying up expensive houses. Then the later ones could reflect the pain experienced by everyone else. I think places on the outskirts like Mandurah have been worse hit in Perth.

Oh yeah. And if there is drops in housing sales volumes, their indicators are screwed.

 

[Reality Cheque]

So would I. Let me know if you are aware of any vendors selling for 30% under market value...

I largely agree with your sentiments both on here and on the other SS. I'm pretty bearish on property(and bullish on silver!!!). I've also just bought another property. Once subdivided, the market could drop by 30% and the deal would still be slightly profitable. I can guarantee a final cost around 30% below the current market. Whilst I'm allowing for a 30% drop in the market, it may or may not eventuate.

If the market only goes sideways I'll have paid only land value and get a 3 bedroom home with a stunning view for free.

There are some deals that are still worth the risk, but not many!!!


Rgds

RC