Analysis: House prices - just who's right?
Jun 03 15:12
Jim Parker
In a week crammed with every economic indicator under the sun, there is only one that most people really care about. And no-one can agree on how to measure it.
House prices have dominated dinner party conversations for years. But now the tone of one-upmanship has extended to the nation's economists, who are in the midst of a catfight about which is the best property index.
The Reserve Bank kicked off the controversy in its quarterly monetary policy statement last month by highlighting some eye-popping research from a private sector organisation, showing house prices falling into a hole.
The RBA used the Australian Property Monitors data in the context of a statement which wrongfooted many financial market economists by playing down expectations of another rise in official interest rates.
Ever since then, some of those red-faced economists have been casting doubts about the reliability of the APM data, saying it exaggerated price falls.
Now, this camp has a weapon in the government statistician's own quarterly house price index - a weighted average of prices received for established homes in the state and territory capitals.
This shows prices nationally rose by 2.5 per cent in the March quarter, with all capital cities, except Melbourne, registering price gains.
The APM data, by contrast, showed prices falling in most cities, with Melbourne prices down 12.9 per cent in the quarter and Sydney slumping by 7.5 per cent.
Consequently, the economists who disbelieved the APM data in the first place were up on their high horses on Thursday. One accused the media of "alarmist" reporting, when it was the RBA that highlighted the data in the first place.
Complicating the picture, another series, complied by Residex, shows no change in Sydney prices for the first quarter, the Real Estate Institute shows a marginal increase, while the Housing Industry Association's shows a 3 per cent fall.
Who's right? Of course, no-one can agree. And market economists have an unerring tendency to favour the data which suits their own particular institution's call on interest rates.
But RBA highlighted the APM data because it is more timely than the Australian Bureau of Statistics' series. That's because it records prices at the exchange of contracts, not when transactions are settled.
The ABS itself admits that in the commentary attached to Thursday's data.
In other words, the government statistician's series is a lagging indicator of what's really going on in the property market.
But there are problems with the private sector house price measures, as well. Most of them are affected by compositional changes. For instance, there may be more sales in a high price region than a low price region.
The ABS data seeks to deal with this by stratifying the sales of houses by geographic area.
"There's definitely room for debate about the scale of the fall in house prices," says Macquarie Bank's interest rate strategist Rory Robertson. "But it's a big call to say the RBA has got it wrong.
