correct me if I'm wrong, but the index is based on actual sales, so how will it effect house prices?
RPData Rismark and ASX introduce daily house price index
- Thread starter Shadow
- Start date
correct me if I'm wrong, but the index is based on actual sales, so how will it effect house prices?
the same way that the GLD and SVR indexes are "trackers", yet their movement now effects the physical price because there is more volume and money in the tracker than in actual bullion.
the tail wags the dog, so to speak.
this is my point. the real estate index will have more people worldwide trading the index than investing in the physical.
therefore, we have historical precedent which tell us that illiquid housing will go the way of illiquid bullion, whereby prices are determined by a hedge fund wanting a quick buck with a naked put.
look at what happened recently, SVRwas sold dow with close to 500mil oz dumped on the market, but only 800mil oz were mined last year. these are naked sells designed to manipulate price for profit or motive.
imagine a hedge fund dumping 2 million homes onto the exchange......
it can and does happen and regulators turn a blind eye.
admittedly, one share wont equal one house, but the mechanism is the same.
swings and roundabouts coming. if you thought we had booms and busts before......well, you aint seen nothing yet.
I'm disagree with you Aaron. I really can't see the index (or a traded derivative that follows) having much (if any) effect on the actualy property market.
The spot price of Gold/Silver is dictated by the Futures market, an exchange which can facilitate the delivery of physical metal if that is the intention of those buying long. How would you propose institutional dealers would do similar with a "property exchange"? The exchange has a stash of properties (incase longs want delivery) which they are actually buying and selling to create the index? Can't see it happening.
The daily house price index is the collation of actual sales, many of which haven't occurred on the day of the index price being printed.
The only way I can see this index affecting the actual housing market would be if home buyers started watching it so intently that their sentiment was changed and they offered lower/higher prices based on it's price... I really can't see the 70% odd PPOR buyers watching an index like this when looking for a home to live in.
The spot price of Gold/Silver is dictated by the Futures market, an exchange which can facilitate the delivery of physical metal if that is the intention of those buying long. How would you propose institutional dealers would do similar with a "property exchange"? The exchange has a stash of properties (incase longs want delivery) which they are actually buying and selling to create the index? Can't see it happening.
The daily house price index is the collation of actual sales, many of which haven't occurred on the day of the index price being printed.
The only way I can see this index affecting the actual housing market would be if home buyers started watching it so intently that their sentiment was changed and they offered lower/higher prices based on it's price... I really can't see the 70% odd PPOR buyers watching an index like this when looking for a home to live in.
What if the index allowed mortgage insurers and banks to hedge against falling house prices, allowing them to relax their lending criteria, which should boost prices but increase the likelihood of defaults? Creating booms then busts.
In small volume capitals banks could actually influence the index with their lending criteria, while also making money off options.
Personally I dont like it, there are enough useless financial "engineers" dicking with the economy... why create more instruments to meddle with the market?
Interesting theory Ergophobia, hadn't considered that possibility. The banks are likely already covered by the LMI providers for high risk/high LVR borrowers, but I guess the insurers could hedge using the index and like you say become more lax with their criteria, letting through more high risk loans.
i'm gonna have to clarify your point first.
if it's a daily house price index as mentioned, it doesnt "sound" like a futures market. if it were, then it's just a "bets on" scenario.
but then, if it is as per
then that spells Fx to me, because people would be betting on the future prices of houses - keep reading >
i think we all need to understand the mechanisms of how it works and what the value is tied to.
if the value is just the mechanics of past house data, then it's just an index and i fail to see why anyone would invest in it. it would obviously pay no dividends, would have no more data/different data from what is currently available therefore there's little use in creating it.
and by default, if there's nothing to physically invest in, then it's not "stock" of a company or product.
therefore, it's likely to evolve into a Fx market because the only way to be "ahead of the curve" is to speculate.
i understand how futures work - my point is that GLD and SVR are TRACKERS, not FUTURES.
yet the TRACKERS are more liquid than the asset; prices and actions affect the FUTURES (speculation) market and by default, the PHYSICAL prices.
if we have a house TRACKER that is more liquid than the asset, it could very well evolve into a FUTURES (speculation) market and by default, affect the PHYSICAL prices.
imagine an FP saying
it's another instrument of wealth destruction, just like GLD and SVR have evolved into.
Can you clarify what you mean? Do you mean GLD and SLV (the US listed ETFs)? Because if so both of these are officially backed by physical metal as well.
I'm really not understanding how you are suggesting something like this would affect the real housing market. Can you explain in detail how you are suggesting the index of sold houses would affect current sales?
In the Gold/Silver market it's the futures exchanges that set the price of physical (although many bugs talk about the day that phyical will break free from the paper prices, I don't believe it), in the property scenario it's the price people are paying for the physical stock that's producing the index (other way around). So I'm yet to understand how you are suggesting the daily index would actually affect buyers who are putting pen to paper at whatever price they want...
I guess the index would give the banks the option to hedge using the index or take out LMI.
Would an Australian wide index really be as practical as that though?
For example if a lender in Queensland was writing high risk loans and that market specifically started to tank there's no guarantee this small market will influence the Australian index on which their hedged... maybe they'll end up introducing state based daily indices, shouldn't give them any ideas I guess
i'm saying connect the dots in the most cynical way possible and odds are that's how it will turn out.
"officially" backed doesn't stop naked shorts.
i'm saying it will affect the physical prices the same way that the bullion trackers affect the physcial prices - open to manipulation.
bullion -
the futures market should dictate the tracker. but it doesn't - the tracker now influences the futures market.
housing -
no futures market, only a tracker, means the only way to stay ahead of the curve is to speculate.....ergo a futures market.
think wall st - not "officially".
Would an Australian wide index really be as practical as that though?
For example if a lender in Queensland was writing high risk loans and that market specifically started to tank there's no guarantee this small market will influence the Australian index on which their hedged... maybe they'll end up introducing state based daily indices, shouldn't give them any ideas I guess
From what I understand there will be an index for each capital city, lenders could look at their total exposure in Perth for example, and hedge against a fall in the Perth Property Index.
I dont know how well this would work tho, because the median sale price only tells you whats selling, not what isnt selling.
Would an Australian wide index really be as practical as that though?
For example if a lender in Queensland was writing high risk loans and that market specifically started to tank there's no guarantee this small market will influence the Australian index on which their hedged... maybe they'll end up introducing state based daily indices, shouldn't give them any ideas I guess
now you're catching on....!
hedging involves speculation.
speculation leads to delivery.
a delvery of a lower house price or a higher house price?
If you want to look at it through rose coloured glasses then you can listen to HIA they will tell you it is 4 ( they don't have any interest in a low figure, do they ????) and other prominent institutions have it well over 7. The Demographia International Housing Affordability Survey in 2011 has the ratio at 9.6
And yes the interest rates did rise but the loan amounts that were being borrowed were much lower. Peoples debt levels are much higher today then they were then. What is the average mortgage on a home today in sydney?
I am unable to confirm the source but the Daily telegrap reported a year ago the average mortgage repayment in Sydney was $4123 / month with a median income of approx $66 K and that Sydney households were spending 3/4 of there income on mortgages. This is not sustainable..
But hey everyone has the right to there opinion.... good luck with your property investing in Sydney.
I haven't seen anything suggesting there will be a separate index for each capital city
got a link?If you meant that you thought lenders being able to hedge their exposure would allow them to relax their lending criteria resulting in a more volatile market then you should have just said that.
All I saw in your earlier posts was a comparison to the Gold and Silver markets which IMO the index would be nothing like.
A comparison of differently calculated multiples today is not really important. For example Christopher Joye argues black and blue that the multiple is closer to 4.5, rather than Demographia's 7+, but what matters is how much these numbers have increased relative to an earlier multiple in the same series.
For example the RP Data income/dwelling ratio hits around 2x in early 1980, whereas you'd probably find the Demographia ratio if taken back may have only gone as low as 3-4x.
2x -> 4.5x
3.5x -> 7.4x
They've increased by around the same amount (relative to earlier multiples in the same series)...
i believe in the evils of man, the purchasing of regulation and greed.
im yet to be proven wrong. i just take the most cynical yet realistic thought process i can think of and it always seems to happen.
if you believe in the good of it, then i applaud you. i see nothing but evil.
im yet to be proven wrong. i just take the most cynical yet realistic thought process i can think of and it always seems to happen.
if you believe in the good of it, then i applaud you. i see nothing but evil.
I haven't seen anything suggesting there will be a separate index for each capital city
not every capital city, but the big ones.
http://www.rpdata.com/research/daily_indices.html
Ed's link above has them
Perths stats aren't looking too good
Perths stats aren't looking too good
Last edited:
Similar threads
