ABS Housing Quarterly Update and What’s in the Budget for Housing
By Louis Christopher on 15 May 2014
No Comments yet, your thoughts are very welcome
Today, the ABS updated their official quarter dwelling price series for the March Quarter. This is one of two preferred series for SQM Research, the other being the APM house price series.
Sadly, judging by the lack of media coverage it received today, you wouldn’t know it had come out. I guess there is much focus on the budget tonight but I also fear that the media places too much reliance on the RP data series given it comes out immediately after the end of the reference period. Yes sure it’s great for timing but is it accurate?
“If there is one weakness in the asking prices index, it is the fact that the index needs advertised prices to be published”
Once again I feel I need to highlight the problems with the RP data index. As we have stated previously there is strong evidence this index is a backward looking index. Rather than giving us an indicator of what is happening on present date it is merely just informing what we already knew on the previous quarter.
That’s right, it is actually that far behind. This is because in collating the daily index for the present day, it uses sold records on properties that exchanged months ago but which were only now sent to RP Data by the Valuer General.
We wrote some articles on this in 2012 and 2013. There is more here (Throwing Darts at the Data Board part 1 and Throwing Darts at the Data Board part 2) as to why the index is actually backward looking.
“Assuming there are no material changes on housing then it will be a matter of how the budget will affect consumer confidence as there is a strong relationship there.”
For the record, I do believe RP Data do a lot of things right. For example their updates on auction clearance rates are becoming quite respectable in terms of their transparency and relative low percentage of unreported results. All credit to them on this.
Of course, if I am going to criticize RP’s index, then I think it’s also a worthwhile to consider the disparity in SQM Research’s asking prices index for the quarter. We have proven in the past there is actually a strong correlation between the SQM asking prices series and the ABS quarterly house price update. But for this quarter, no such strong result!
Sydney and Melbourne appear to have contributed to a rather mute change in asking prices for these cities. If there is one weakness in the asking prices index, it is the fact that the index needs advertised prices to be published! We noted some weeks back that there has been a surge in ads without a price guide, and it had become particularly noticeable in Sydney where now 35 per cent of Sydney properties are being advertised without a price guide – this might be influencing our index. But for now the jury is out.
So what do the official, ABS results tell us?
Houses – March 2014 Quarter Change Source: RP Data, SQM Research, ABS and APM.
It really does depend upon the city. Quite clearly Canberra continues to struggle (we think it has been falling) and Perth is slowing. I think the Melbourne results are a little too optimistic and I suspect that the 2.8 per cent rise reported by the ABS will be revised down on the next quarter.
Sydney still had a strong March quarter but growth appears to have eased a little from the crazy last months of 2013. Brisbane is not rapidly picking up as hoped by some of the bulls, but I am a believer momentum is building in South East Queensland and future quarters may well record faster price rises.
“Auction clearance rates are becoming quite respectable in terms of their transparency and relative low percentage of unreported results.”
What is interesting to note is that according to the ABS data, the march Quarter has historically been the weakest quarter in terms of house price rises. On average house prices rise just 0.8% for the march quarter. Whereas the December quarter records the strongest result at 2.3%. By the way, we took this data back to 2002 whereupon the existing ABS series finishes.
Average Quarterly Price Change Back to 2002 Source: ABS
Why does this happen?
Well I think it must be related to the fact that the March Quarter is really based on two months’ worth of data as January is largely a closed month due to the holiday season. And those properties that do sell in January tend to be discounted properties that failed to sell in the previous year. But I am also happy to hear other views on this.
So far the annual result suggests we are on track with our 15-20 per cent forecast for Sydney with house prices rising 16 per cent for past 12 months to March. And our national 7-11 per cent forecast with the ABS index as the benchmark is looking the goods.
Houses – Yearly Change Source: RP Data, SQM Research, ABS and APM.
What’s in the Budget for Property?
Well we don’t know yet, but next week we will do an analysis of it as it relates to real estate. As mentioned some time back that we had strong evidence the Government was looking at changes to negative gearing. Indeed we heard it from the horse’s mouth!
But since then, not a peep from the government and you would think that something like that would be leaked on more than one occasion if there was going to be some real change. Assuming there are no material changes on housing then it will be a matter of how the budget will affect consumer confidence as there is a strong relationship there.
As reported last week, consumer confidence has slumped in recent months, perhaps in anticipation of a hard budget or unfounded expectations of imminent rises in interest rates, which once again the real expectation now is no rate hikes for the foreseeable future.
This article was originally published by SQM Research.
