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.