Stat battles

The battle for the hearts and minds by the housing data providers has died down a bit since the 3-way skirmish in late May. Since then we have seen the birth of the a new venture that has seen 2 sides of that battle (SQM research and RPData-Rismark) publishing information through the same mouth-piece. It is, however, a little too early to tell if that has forced either side to capitulate on their differences.

I am not sure whether it is an extension of that existing battle, or a new push for higher ground because of the impending launch of a new product, but there is obviously some fire left in the furnace because yesterday Rismark MD, Chris Joye, took it on himself to launch the latest salvo against his opposition.

The linked article is an assessment of the different indexes used by various housing data providers, and unsurprisingly the MD of Rismark concludes that:

If investors want to work out bona fide capital growth rates, they should not use unadjusted median price data. They should try and rely on more sophisticated index methods that overcome the simple median price biases, such as those that have been reviewed above. My preferred approach is the RP Data-Rismark hedonic index. If that is not available, go with APM’s stratified median index.

I agree with Mr Joye’s analysis that a hedonic index is a better measure of house values than the other methods used. But by championing his index in this way, Mr Joye is also illustrating the problem with interpretations that surround and emanate from his index. If the article had been produced by someone independent I would applaud a well-rounded and well researched argument. But the MD of the company, telling you he thinks his company’s product is the superior one, offers little value.

Mr Joye, however, did raise a couple of points that I think need some further clarification.

Firstly, he has again re-iterated that his company values the housing stock of Australia 15% lower than the RBA:

Our best guess is that the total value of privately owned residential real estate is about $3.5 trillion.

This seems quite odd given that Mr Joye also stated in his article that:

Working out which index suppliers the RBA relies on is also important for the economics community that is paid to watch the central bank. In this respect, Westpac chief economist Bill Evans has commented: “RP Data-Rismark are the RBA’s ‘preferred data analysts’ for house prices.

Maybe someone can clear that up for me ?

Secondly,  a point I have raised previously about the need for independent data analysis around the largest asset market in the country. In the US, for instance, the pre-eminent housing index, S&P/Case-Shiller, is privately owned but is given away for free, ensuring a perception of independence.

Here is my earlier point:

… An even better outcome, guaranteeing the integrity of the system, would be the use of data sources free from private interest. I am not suggesting impropriety, but such products should be free of perverse incentives. I think the listing of such an index would be an opportune time for the ABS to begin creating its own hedonic index.

In the article Mr Joye states that the data is already collected by the ABS from other government departments:

All four index providers referenced above collect data from the Valuer Generals or Land Titles offices in each state and territory. In Australia, we have the important advantage that government agencies record data on pretty much all sales executed across the country. This is a function of our stamp duty system. These agencies then make the data available to a limited number of licensed contractors, such as RP Data, APM and the ABS.

He also states that the reason the RPData-Rismark hedonic index was created in the first place was due to a request from the RBA governor back in 2004, which again makes me wonder why the ABS didn’t pursue  it.

The RBA has made the measurement of house prices a particular focus ever since former governor Ian Macfarlane, correctly argued in 2004 that “housing…is an extremely important asset class for most people, yet … [i]t really is probably the weakest link in all the price data in the country, so I think it is something that I would like to see resources put into”. The RBA believes that in a perfect world one would use more sophisticated “regression-based” methods, such as the hedonic indices produced by RP Data-Rismark

And he also points out that hedonic indexes are…

…complex to compute, and have intensive data requirements on the unique attributes of every individual property included in the index.

Given that the ABS already receives this data, has considerable computing power and is arguably the centre of excellence for statistics in Australia, I still cannot see why the ABS  does not build its own hedonic index which would be a truly independent source at the centre of the highly contested housing data debate. Given that the RBA requested such an index in 2004, and continues to rely on such an index to make policy decisions that effect Australia’s economic future, it seems to me that the ABS should be doing it, in the national interest.

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  1. michael francis

    The only worthwhile property data comes from the Valuer Generals Department who collect all house price data for the collection of stamp duty.

    • Torchwood1979

      An acquaintance bragged to me that his land had been valued at $400K by the Valuer General. He was clearly feeling inflated about the wealth he was sleeping on.

      So I told him that similar houses in his street have been sitting on the market for well over six months for $350K, so there’s no way his land is even worth $300K, and the valuation was only that high so the government could charge him higher rates. Then he was clearly feeling deflated. Some days I just love being a mongrel. 🙂

    • Obscure question, but would you happen to know where I could get (for free) prices paid on houses acquired before the early 1970s for Queensland? Would I have to do a title search on each property?

    • The accuracy of the data used by Onthehouse seems questionable to me. Most of it seems OK but I’ve come across instances where sales are either recorded at incorrect prices, or sales are recorded that havent actually happened.

      Not sure if this issue is with them, or with the data that is being fed through (and so it might point to data quality issues within the various govt departments).

    • I second that Pete – our recent purchase date was marked incorrectly – over a month earlier than actual settlement.

      But it still remains a powerful and free resource for home buyers – you get quite a shock when you see stuff listed for 3 or 4 times what it last sold for in the early 2000’s….

      • Prince – I have the opposite experience – I have checked the data for quite a number of units on sale in North shore of Sydney. Most units are now selling either below or only slightly above their last sale price (presume this is off-the-plan price) at around 2001-2003. The results are a bit better for purchases around 2004-2008.
        I guess people overpaid even in that period 🙂

  2. From what I have read elsewhere, the Rismark index appears to use data on number of bedrooms, bathrooms, garage, attached v free standing etc, which agents record when listing homes for sale in RPData.

    This is therefore not publicly available data and the reason other index providers don’t offer the same index and need to rely on other methods.

    I have no doubt the ABS could easily construct better home price indices than it currently does with publicly available data.

    In the end, all indices should paint the same picture when examined over longer periods (eg, years instead of months).

    Also, 3 of your first 4 hyperlinks are all the same and don’t appear to redirect where you intended.

    • Also, I would just mention that Rismark does release their index for each capital city, and the national index, for free each month.

      It’s not like they are hiding the index – just the data and key parts of the methodology (like which hedonic variables they use and how they are transformed).

      • “It’s not like they are hiding the index – just the data and key parts of the methodology (like which hedonic variables they use and how they are transformed).”
        So, Suppose this hedonic index were to list on the ASX, as Rismark MD repeatedly trumpets from time to time. Will they have to make a full disclosure of the data and methodology?
        If so, I would welcome the listing :). If not, then that index has no right to be traded publicly as transparency is the key issue here. So I hope the former peddler of RMBS and current chairman of ASIC does not wave thru his approval for a public listing of this index.

  3. Bubblelicious

    I think DE hits the nail on the head when questioning the need for an independent data provider.

    Chris Joye’s bullish, and sometimes hysterical defence of current property prices, together with questionable price / income ratios detract from what appears to be a relatively sophisticated index.

    Independent data providers are an absolute necessity to create an informed market, and is arguably even more important in an arena where the key intermediaries and agents are happy to spruik their book and are not regulated in a material way.

    • Bubblelicious

      I should have added that today’s AFR includes a nice piece on the rise of underquoting (again) that further illustrates this point.

  4. michael francis

    The best method would be to correlate the data from the Valuer Generals Department which is also collected by Local Government and cross-reference it with Planning and Building permit approvals issued by the same authority.

    Then you have everything-number of bedrooms and toilets right down to the family cat, including costs.

  5. David Collyer

    The land market is the biggest market in Australia. It dwarfs the stock exchange. Yet it exists without a genuine reliable independent price index. The federal government must instruct the ABS to collect this data in a timely and consistent manner. It is the only organisation I would trust. This is a matter of the utmost importance. Inexperienced buyers are ripped off constantly by the assymmetry of information. Where is the economic or social benefit in this market failure?

  6. Most indices are pretty useless in characterising statistical distributions unless these distribution are parametric and only dependent on a single parameter. As far as housing market trends are concerned it makes more sense to look at what sells and prices that it fetches rather than some hypothetical index. A few measures calculated for a good sample of sold properties such as the mean, median and quartiles would provide more predictive value than heavily massaged hedonic indices. Another useful measure is the total number of properties sold within a period of time. Even if we do not have the complete set of prices for all the properties sold then having the mean price calculated from a good size representative sample would give us the total value of transactions.

    • I’ve really got to agree here…

      Property-type-specific AND regional-specific indices would be MUCH better than broader indices.

      Harder to pull off, yes, but better and far more accurate

  7. Which out of these chumps has the next set of median prices out? Can’t wait to see the dip in Melbourne based on what I’ve seen.

  8. Great post DE.

    I’m not sure why public information – the recorded sales data of houses across the country – is not made truly public.

    How hard is it for the ABS to collate this data and place it online?

    Other private bodies could then develop their own indices and methodology, and researchers would have a more reliable source of data to look closer at the Australian property market.

    • it seems strange ‘Zillow’ in the US have all sales prices aswell have introduced estimated rents, yet RP data and the like charge…

      • We are heading in the direction of zillow with free onthehouse data. We’re just a bit behind the US in these things …

  9. Who cares about meaningles and manipulated stats… use your power of observation and instinct; There are more houses for sale every day in almost every market with hardly any buyers in sight. Even my pet monkey can work out which way prices are heading !

  10. michael francis


    A number of years ago I was a senior surveyor with a large municipality and worked alongside the Council Valuer.

    Every property had a file. That file started when the land was born. Everything since its birth was recorded. Who owned it, what they bought it for, what it sold for, what was built, how much did it cost, any rennovations, extensions, what did they cost. The file is extremely comprehensive and detailed. I chased up information all the way back to land subdivided by John Batman, Melbourne’s father, when I worked for City of Melbourne. All is now in electronic format.
    All it takes is to make this information accessible on the internet.

  11. I often wonder how many billions are spent each year in Australia on builders, electricians, plumbers, and at Bunnings, Reece bros, timber yards, brickworks, etc etc. kitchens, bathrooms, landscapers etc etc.

    If all this spending was factored into the rising house prices, perhaps much of the perceived value would be accounted for.

  12. Lighter Fluid

    While not entirely on topic, I’ve heard that the ABS has some troubles (I’m sure they see it more as a puzzle) in the National Accounts series…

    There are 3 measures of GDP (based on income, sales/receipts and one on production – if I recall correctly), the number we usually hear is an average. All three are disclosed in the national accounts releases. The three series usually oscillate about a common trend, but lately they have become increasingly divergent (albeit the trends are intact). Treasury, RBA, etc are understandably a little concerned. The ABS doesn’t really know where the anomalies are coming from yet, but Treasury has thrown a hefty sum their way to try and find out.

    The ABS is pretty rigorous, so they wouldn’t release the data if they had serious concerns.

    Probably nothing to be worried about, but interesting nonetheless…

  13. I still call BS on the launch of a ‘new product’ that will allow speculators to take a position on RE indicies, and it will remain BS until CJ actually reveals how the provider will hedge their exposure, or admit that the provider will be making a synthetic market with all the liquidity and counterparty risk that entails when market sentiment moves in one direction!

    • its be interesting to see how demand for physical stock would fair if the synthetic index was quite deep/liquid..

    • also interesting to see if people did funny games whereby the big developers had a large amount of physical stock and they artificially inflated the index price to sell the physical at inflated prices…

      • They are already doing this in a way. Many large developers are holding masses of stock (especially in SE Qld) and doing staged releases (i.e. restricting supply to inflate prices). This is having a real impact on house prices; it is substantially contributing to inflated prices. Then the developers cry to the media that governments are being overly restrictive with their planning approvals and blaming the government for limited supply.This is not because large developers are actually short on stock but because their tantrums to MSM work, getting approvals through. This then massively increases their value (as land with approval to develop) and they can then trickle supply into the market keeping prices much higher than they really should be and propelling the myth of under supply. They’re perfectly executing the formula that De Beers uses by artificially constraining supply so as to propell the appearance of limited resources and maintain apparent value in their product.

        Clearly this is not the only impact on house prices, but I think it is an issue that has been very much over-looked.

        On a side note, the profits that big developers are making is well in excess of “normal” business profits. This is also having a massive impact on property prices.

        • If the Government abolished SEQ’s urban growth boundary and loosened zoning on the fringe (ala middle America), the land market would become fully contestible and competitive, thereby preventing developers from land banking and restricting supply. Any developer that tried to land bank would lose money as a rival developer would be able to buy adjacent land for near its agricultural value. Further, pre-existing rural land holders would not be able to force up land prices as they would be competing with a large number of rival sellers.

          The SEQ developer’s actions are possible because of QLD’s land-use regime.

          • UE
            I agree government restrictions enable much of this behaviour (I don’t agree with the extent of the impact that you believe it has though), but as much as it could be solved by unconstrained urban sprawl it could also be somewhat mitigated through time restrictions on DAs so that housing must be built within a limited timeframe to ensure that the real supply is clear to the market. Developers can hold vast swathes of DA approved land for little cost, holding uninhabited properties would on the other hand not be financially viable for them. Then this would clearly signal to the market the true housing supply level. I think that this would be a better first step rather than allowing development from here to Toowoomba without any cohesive underlying infrastructure and community planning.

            I think if we want to point fingers at the government over the housing bubble, the FHB grant would be a better policy to target. House prices have gone up substantially in Australian cities/towns irrespective of the restrictiveness of planning restrictions.

  14. DE – good post.

    I thought about why CJ can say that RBA use our data and then in the same breath claim there is a 15% difference between Rismark and RBA in relation to their valuation of the entire Australian housing market…

    Maybe Rismark disagreed with the valuation given by the RBA of the entire Australian market when they came on the scene.

    They supply the RBA with changes in dwelling prices…but they dont provide the RBA with a summary of the value of al Australian property.

    Rismark are (due to their shared equity finance business) also always trying to play down how overvalued the property market in Oz is…so it would be in their interests financially to make out the Australian housing market is valued at less than it really is.

    This allows Joye to claim we have a income-house price ration of under 5…if he had to use RBA figures for total value of market, they couldnt downplay the affordability issue.

    Just a theory…I have no evidence to support this and maybe I have missed the point.

  15. I agree with Michael Francis. The Valuer Generals Department’s data is the only accurate measure.
    The others are just essentially fudging statistics as usual.