Yesterday I posted my observations that rates of credit issuance are the main driver for housing price adjustments in Australia. I noted that when the rate of credit issuance rose for a month then prices moved upwards soon after, and the reverse was true for the downside. It was therefore important as a housing investor and/or home buyer to take close notice of the trend in housing transactions to get an idea of where the market could be heading in the future.
I stated yesterday that my data was only for March 2002 onwards because that is when the
ABS house price index data began. A reader mentioned that in fact there was also another dataset available so I decided to recheck my theory against this data.
The city “house price” charts below are simply based on the data in the new dataset. The “credit churn” charts are created from the ABS state
data for financial commitments for owner occupiers and the ABS state data for commercial finance commitments
The charts are as follows.
And NSW credit churn:
And Vic credit churn:
And Qld credit churn:
And finally Perth:
And WA credit churn:
As far as I can tell in all markets above from 1991 until 2005 the rate of monthly issuance of credit was tightly coupled with changes in house prices. Again I am happy to be proved wrong. But given this data I would suggest that watching changes in housing market transactions, and therefore credit issuance, is an exceptionally good indicator of future house price movements.