May AFG mortgage data seasonal adjustments

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Please find below a guest post from Nathan Webb on the latest AFG mortgage finance data. Enjoy!

The AFG mortgage sales came in almost right on expectations, with 7635 against expectations of 7562. Their headlines were almost as good, with AFG proclaiming, “BIGGEST MONTH FOR MORTGAGE SALES IN 3 YEARS – MAY FIGURES”. While that had AFG scratching for reasons, and calling out the obvious interest rate cuts, as well as the less obvious increase in market share, the main reason is because there were more trading days (23) this May than any day since 2009 apart from August 2011 (which also had 23).

As per usual, I’ll start with the historical mortgage sales with the predicted values overlaid. As you can see, June is expected to show a fall followed by a couple of up months, a big dip in September, and a good finish to the raw volumes at the end of the year before the Christmas hiatus. Overall, there will be far more trading days variation this year than there has been in the last 3 years.

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The next chart shows the difference between the prediction and the actuals, which is the basis of all of the other charts. This shows that the last few months have seen very little divergence and a levelling off. The latest result continues that trend, making it 7 months in a row. The $4T question is whether that will be enough to prevent house prices from continuing to fall.

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To answer that, let’s start with the SQM change in stock on market (3-month m.a.), and the prediction here is for stock levels to remain fairly constant over the next few months. The last 8 months has seen a net decline of precisely 1419 stock nationwide.

Turning to house prices, the prediction has been for low growth for the second half of 2012, but May has been a shocker for the correlation. Yes, that was a big miss. So what went wrong? I’ll put a fair bit of it down to increased volatility in the RPData series, after all, there isn’t a perfect correlation, and there will be misses from time to time. If that’s the case, then you should expect to see a few positive results coming soon, balancing out the big negative.

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But I suspect something else is happening here. Peter Fraser, with inside information, has suggested that AFG might be winning market share. This would account for their sales remaining stable while the rest of the market tanked. I would add that AFG appear to have about twice the market share in Qld, WA and SA compared to NSW and Vic. The falls over the last 3 months were primarily driven by Melbourne, and to a lesser extent Sydney. Perth and Brisbane did OK (less than 1% fall), while Adelaide grew strongly. So we might see a period where nationwide prices fall while AFG continues to do well in their core states.

Last month I said:

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Looking across the charts, it looks to me like the next few months will be more of the same. The last 2 weeks of April saw some big drops in the RP Data indices, but prices are still roughly the same over the last 3 months. Given the volatility in that series, I would expect to see some big falls, followed by some big rises, for an overall flat outcome over the next half-year.

We’ve seen a big fall, so that part of the prediction has come to fruition. For the rest to hold, then we will have to see some big rises coming up. I’m definitely not saying that it’s onwards and upwards from here, but I am standing defiant in the face of the big fall in May. That won’t be the last of it – the increased volatility of the daily series will make sure of that – but I don’t think we’ll see total nationwide falls of more than 5% over the next 6 months.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.