The bulls circle the wagons

Today on Smart Company, Craig James of Commonwealth Bank offered this brief article:

The Reserve Bank Governor was asked a question on Australian home prices when he delivered a speech in London on March 10. The comments weren’t well reported, but he highlighted the fact that home prices aren’t rising strongly at present, that arrears rates on mortgages are low, gearing isn’t high and that, overall, home prices “are probably not top of my list of worries.”

However, Glenn Stevens did say something else: “But I think – the other thing I’ll say is that it’s quite often quoted very high ratios of price to income for Australia, but if you get the broadest measures, a country-wide price and a country-wide measure of income, the ratio is about 4 ½ and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as I can see.”

What he was quoting here was the analysis by Rismark International and RP Data on housing affordability. To measure home affordability you need to compare all incomes across Australia with all home prices across Australia – city and regional. Unfortunately a raft of industry bodies don’t do that and it produces spurious outcomes.

The bottom line is that Australian home prices aren’t so extraordinary after all. Once foreign investors start focusing on the facts rather than fiction then perhaps a few more dollars will start flowing Down Under. Because it is a concern abroad, and it’s not being helped by misinformation.

To be sure, one doesn’t know what “industry bodies” Mr James is referring to. But for what it’s worth, the CBA throwing around allegations of misinformation around house prices is a bit odd, especially in reference to international investors.

Last September, it was CBA that used spurious logic and cherry-picked data throughout a presentation especially designed for  international investors.

More recently, Deep T. has elucidated CBA’s questionable use of a comparison between its capital position and a raft of international banks. Presumably the juxtaposition was also designed for international investors.

Instead of making vague references to “misinformation” and “concern” abroad (is this the Cold War?), the CBA should be providing better information.

Houses and Holes


  1. Actually, in the chart “Rismark-Dwelling-price-to-income-ratio” that Leith posted in an earlier blog post (“Response to Chris Joye on Australia’s dwelling price-to-income ratio”), we can actually see that Glenn Stevens is wrong about his 10 year time frame.

    10 years ago, according to that chart, it was at 3.5x. The actual time frame where it hasn’t moved is 7 years, as it reached 4.5x in early 2004.

    Of course, as Leith covered in the aforementioned post, Rismark’s ratio is not something you can compare internationally anyway due to all the “extras” included as disposable income.

    The irony of Mr James and the CBA complaining about misinformation is unbelievable.

  2. The shady box at bottom ,say’s…
    “The bottom-line is that Australian home prices aren’t that extraordinary after all”….
    No, Just the price of our labor is..and
    In thinking and seems the whole aging box is unsupported with-out asset sales…or should I say it’s all Academic..

    cheer JR

    • If you have questions then by all means ask Leith directly or state them here and someone else will be able to answer them. Good luck having anyone here take Chris Joye seriously though.

      • I take him seriously. He has been pretty much spot on with his predictions and analysis of the property market. Unlike certain notable members of the opposing camp.

        • I have been reading Mr Joye’s blog. He has been relentlessly wrong on inflation and RBA interest rate hike predictions. But he always hedges his bets with a “well, everyone else was wrong too” or “RBA is not doing the right thing” type statements.
          I do take his predictions seriously….and head in the opposite direction.

  3. Following on from booboo’s post.

    Question. Who co-authored a report in 2003 to John Howard, with an introduction by Malcolm Turnbull, stating the Australian dream of owning your own house was becoming increasingly difficult?

    Answer. Christopher Joye.

    Question At that time the house/ income ratio was around 3-3.5. It’s now 4.5 and according to Chrisopher Joye we now have no affordability issues. So what has changed?

    Answer. Christopher Joye

    For a guy who has got talent, it’s a pity he can’t steer a straighter course.

  4. I know this all gets alittle tinfoil hat, but Chris has quoted this article on his blog. In every other article he provides a link, but this once, nothing.

    I wonder if it’s due to the comment slamming the RP methodology at the bottom?

  5. Well there it is – an admission that tells us our o/s investors are a little edgy. Good luck with rolling that $100B+ worth of debt over Big 4.

  6. Jesus, guess who… intro to the same Craig James piece…

    “CommSec’s Craig James has been relentlessly right about Australia’s housing market, which contrasts rather strikingly with his critics on the housing loonie fringe (when they write about housing, senior journos often complain to me about the nutters that seem to dwell in the shadows of this most emotive topic).”

  7. oh dear…
    “CommSec’s Craig James has been relentlessly right about Australia’s housing market, which contrasts rather strikingly with his critics on the housing loonie fringe (when they write about housing, senior journos often complain to me about the nutters that seem to dwell in the shadows of this most emotive topic).”
    Really Chris? Why the reference to some anonymous “loonie fringe” and “nutters” then? Be a man and name names.
    BTW, Asst Prof Keen recently spoke at an event for Mortgage Finance Association of Australia – Not something a loony, fringy type person would be allowed to do, don’t cha think ? 🙂

  8. “broadest measures, a country-wide price and a country-wide measure of income”

    That is right, obviously one should take the country-wide price because if you can not afford to live in inner Sydney, you can just move to the outer suburbs. And if you can not afford the price there you can just move to Adelaide, or Hobart.

    It is a pity that the high paying job in Sydney city center will not follow you when you use a broad based search for somewhere to live.

  9. I think house prices have… what is it… doubled? over the last 10 year?

    so thats 7.2% a year… compounding…

    so… who got a 7.2% wage rise without a promotion… every year… for the last 10 years?

    my point is of course to the “and the ratio has stayed about the same for the last 10 years” obviously for this to be true, wages would have had to rise as fast as houses…

    if he’d put it like that “wages have grown about as fast as house prices over the last 10 years” you would have had so many people ROFL even (infact, especially) the oh so proud home owners!!

  10. I don’t have a PhD in anything, but I know there is a housing bubble when the chief economist with CommSec (which is allegedly Australia’s most feature packed online equities broker) spends way more time on predicting the direction of the housing market than he does on the equities market!!