Slow melt, slippery slope or touching bottom? Can’t decide ? Maybe the ABS can help with today’s capital city house price index:
ESTABLISHED HOUSE PRICES
- Preliminary estimates show the price index for established houses for the weighted average of the eight capital cities decreased 1.2% in the September quarter 2011.
- The capital city indexes decreased in Melbourne (-1.7%), Brisbane (-2.5%), Perth (-1.3%), Sydney (-0.2%), Adelaide (-0.9%), Canberra (-2.0%), Hobart (-1.0%) and Darwin (-0.4%).
Annual Changes (September Quarter 2010 to September Quarter 2011)
- Preliminary estimates show that the price index for established houses for the weighted average of the eight capital cities decreased 2.2% in the year to September quarter 2011.
- Annually, house prices decreased in Brisbane (-5.2%), Darwin (-4.4%), Perth (-4.2%), Adelaide (-3.2%), Canberra (-2.2%), Melbourne (-2.1%), Sydney (-0.3%) and Hobart (-0.3%).
Below is the previous two quarters for a bit of context. June Qtr:
And March Qtr:
From that it looks as though we had a bit of upwards revision for the March Quarter and some downward revision for the June Quarter. Once again I am finding it hard to see a bottoming here, every city recorded a negative value in the latest index for the first time ever. However, the falls are still relatively small which supports the slow melt meme.
Let’s try comparing the ABS indexes with the R.P.Data-Rismark Index. Here’s the chart courtesy of Data Sword:
Obviously R.P.Data hedonic index is opening a pretty serious lead over the ABS in tracking the downward price shift.
The ABS uses a stratification metholodology which it defines as:
The stratification approach involves grouping the observations for the ‘most similar’ dwellings into clusters, to enable the derivation of a representative sale price for the cluster (usually the median price). The objective is to optimise the physical homogeneity of dwellings within each cluster, while ensuring a sufficient number of observations to produce a reliable median price.
The effectiveness of the stratification approach is determined by the degree of stratification possible and the availability of stratification variables. It may not be feasible to employ fine level stratification if there are insufficient observations to produce reliable movements for each cluster.
This is a fancy way of saying that the ABS uses medians, which are obviously subject to the usual composition biases. Meaning that they can’t take account of changes in individual property variables such as renovations, position or aging.
The R.P.Data index is also median stratified but is hedonically adjusted, which means it takes account of individual or qualitative property variables. Here’s how they describe it:
The hedonic-regression is a method that attempts to overcome the issue of compositional bias associated with median price measures. The premise for this lies in hedonic theory which suggests that the value of a composite good – such as a house – is the sum of its components. Thus, by decomposing the sample of houses into their various structural and location attributes, the differences in these qualitative factors across houses can be controlled.
Whatever the differences, the two indexes track each other closely in terms of the amplitude of price movements but the R.P.Data Index is clearly more responsive to changes. I think of it as the better gauge.