by Christopher Joye

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It’s official. We now know what Australia’s best economic boffins think happened to the housing market in the first quarter of 2009 following a week of confusion (recall the ABS numbers conflicted with those of both APM and RP Data-Rismark).

In the RBA’s Statement on Monetary Policy released today, the RBA concluded (p33): “After falling modestly in 2008, nationwide housing prices were little changed in early 2009, although there is some variation in the range of available measures that use different techniques to control for changes in the composition of property transactions (Table 10).”

In Table 10, the RBA shows five different measures of house price changes in the March 2009 quarter.

Four of those measures – from APM, which uses a stratified median price index, and my company, RP Data-Rismark, which uses an hedonic regression technique – were positive or flat across Australia while one, the ABS’s stratified median price index (the one that the media has focused on), was down strongly.

The ABS’s index data does not sit well with the RBA’s conclusion that “nationwide housing prices were little changed in early 2009”.

The ABS index excludes all apartments, semis, and terraces and only examines fully free-standing houses. Yet even when RP Data-Rismark computes a stratified median price index similar to that used by the ABS and restrict it to just free-standing houses, the results and the results of APM’s stratified median house price index were both flat during Q1 2009 (ie, nothing like the ABS).

In Graph 32 (see below), the RBA has illustrated a chart of the RP Data-Rismark Hedonic Australian All Properties Index divided up into “most expensive suburbs” (which is the top two deciles of suburbs by price), “other suburbs” (which is the middle six deciles by price), and “least expensive suburbs” (the bottom two deciles).

The graph shows that the middle six deciles (“other suburbs”) and the bottom two deciles (“least expensive”) have been flat or rising in 2009 while the most expensive suburbs fell significantly.




On the outlook for housing, the RBA commented: “Looking ahead, low mortgage interest rates and the increase in grants for first-home buyers have made home purchase more affordable...There are positive signs in the forward-looking indicators and from the Bank’s business liaison. Loan approvals for new construction and first-home buyer grants paid for new homes have risen in recent months...Consistent with these indicators, surveys of consumer sentiment report a relatively high proportion of households responding that it is a good time to purchase a dwelling. Further, after slowing in the second half of 2008, housing credit growth picked up modestly over the March quarter...This reflected a rise in new lending, largely to first-home buyers, that has more than offset an increase in repayments by households with existing debt.”

Read more from the RBA here.

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