SQM hits “inaccurate” RP-Data daily index

Please find below a press release from SQM Research questioning the efficacy of the RP Data-Rismark daily home values index:

Upon the back on recent commentary released by RP Data-Rismark in relation to increasing house prices in Australia, property research house SQM Research would like to take this opportunity to formally state our contrasting beliefs and forecasts on the current state of the housing market, particularly that of the Sydney and Melbourne market.

RP Data has asserted that house prices across the capital cities rose 1 per cent in June, attributed to recent interest rate cuts. It is the opinion of SQM Research however, that this was not the case and that their figures for both Sydney and Melbourne are particularly unreliable.

Louis Christopher, Managing Director of SQM Research states “I do not believe for a moment that house prices are now rising in Sydney or Melbourne as RP Data/Rismark have claimed today. Their daily hedonic index, for which these claims are based on, is an unreliable index as it is based on a miniscule proportion of actual sales that happen on a daily basis. Effectively on a day to day basis, the index misses out on over 95% of sales. And since it is an unrevised index, it means those missing sales are never taken into account.

“There is no other measurement out there that is indicating that prices are rising. Weekly auction clearance rates are still weak, there is a current oversupply of real estate listings, housing finance approvals are weak and credit growth is subdued. This index (RP Data-Rismark Daily Hedonic Index) has previously given false readings, in particular on Melbourne earlier this year.”

SQM Research regards the index as highly unreliable and believes that it is now creating more confusion than ever in the market. We believe these figures should be taken with a grain of salt and look forward to the release of the official independent measurement of house prices for the June quarter in early August by the Australian Bureau of Statistics (ABS).

For more information, please contact:

Louis Christopher

Managing Director

SQM Research Pty Ltd

Comments

  1. “Effectively on a day to day basis, the index misses out on over 95% of sales. And since it is an unrevised index, it means those missing sales are never taken into account.”

    I was under the impression that missing sales are added to the index as the data is made available. So wouldn’t the daily index still capture the data, albeit would be slightly rear view mirror looking (e.g. daily prices would be more representative of prices from a week or two ago or however long it takes on average for the sales data to become available).

    • outsidetrader

      That was my understanding too – ie the value of the index on any given day is based on all the sales data collected on that day (which would be a basket of sales covering a collection of days over a period of weeks).

      • Have they not promoted their daily index as a measurement of how house prices are changing “on-the-day”?

        The arguement here is that they would not have much access at all to sales that have occured ‘on-the-day’ for the day concerned.

        Perhaps they should disclose in their daily index that it is indeed a backwood looking index. That the day change represents what has happened in the past and not so much, what happened that day.

        BTW I still have not read any discussion from them that they actually believed Melbourne house prices rose 1.8% in February. Well did they?

      • I agree it’s certainly not representative of “on the day” prices.

        I suspect it was ultimately designed for the companies involved in it’s creation to scalp $ while acting as market maker if/when the indices becomes tradeable. Or perhaps just as as promotional tool.

        I also agree that some of the price movements are suspect. e.g. Adelaide’s recent rise and decline, did it really happen as the index purports? I doubt it.

      • And thats the big problem isnt it. If the index on a daily basis represents the past. How far back in the past? Days? months? Years?

        Remember all off the plan dwellings are not reported to the VG (and passed on the RP plus others) until they have settled. That can be beyond 18 months from the exchange date.

      • Definitely a question I would like answered.

        I would like to see RP Data provide a list of the properties (with price and sale date) that actually went into the indices for one of their daily updates so that we can gauge for ourselves it’s credibility.

      • “I suspect it was ultimately designed for the companies involved in it’s creation to scalp $ while acting as market maker if/when the indices becomes tradeable. Or perhaps just as as promotional tool.”

        Bingo – but I would be very surprised if it ever sees light of day on the ASX as it is highly autoregressive – just too predictable in the short-term.

      • Louis,

        I only have limited data (not nearly as good as your sets), and have not yet had the chacne to drill down into my realestate.com.au Sold data; but is it possible that we are seeing a movement upwards in the index due to an unusual concentration of sales in a higher bracket of sales, such that the index has been skewed?

        eg. skewed by a rush of buyers into the $600K-$800K bracket, for example??

        What do you think? Or should the hedonic index completely adjust for that? Perhaps it could only partially adjust for it?

        I look forward to your thoughts (and i’ll do some more digging myself…!)

        Stewart

    • BB and OT – that’s also my understanding. If that’s right, it makes the index ‘laggy’ and also, should this ever become a tradeable index, means that you should be able to profitably trade it if you have a really good feel of what’s happening on the ground in a city’s market at an exact moment(maybe). It also makes the idea of this being a daily index all the more ridiculous – as the day’s data are not sales made that day but sales collected that day which, as OT says, may have actually been made days or weeks before.

  2. I have graphed the RP Data daily index from Mar 11 2011 against the ABS official figures. The divergence is quite large with ABS figures tracking considerably lower.

    Shame, the RP Data figures used to be a credible indicator, unfortunately no longer.

    Would be good to see some analysis on the other states.

  3. i think Louis Christopher has jumped the gun and failed to do the appropriate background research.

    Bullion barron is exactly right. RBA use this data because it eventually includes 100% of all sales…and all those missing sales are eventually reflected into the index. To claim the ABS has a larger sample is a massive factual error. Given a whole bunch of organisations have put their name to it publicly backing this index is simply because they have done their background research into it and know that its pretty good.

    Easy target for Chris Joye to publicly bag him and his company for getting it wrong

    • But wait Troy, I’m confused (he says, continuing the Simpsons meme…)

      Didn’t RP Data design or have input into the methodology now used by the ABS?

    • Normally-sober Chris Zappone???

      IMHO, he is perpetually on the hunt for some teeny weeny “good” news on property prices in order to blow it up with some shallow analysis.

  4. All I know for sure is what vendors are still asking for their properties and that I will never be willing to pay that amount of money.

    I don’t need to know more. That we’re being gamed is a dead certain for me.

    • Price is the level at which the buyer is prepared to swap his $$ for the asset…. If they’re offering (and successfully selling) the asset for a level above what it is intrinsically worth, then good luck to them; it’s the sucker that pays more than it’s worth that is losing out in the trade.

      Our valuation of the Australian residential property market shows current Melbourne & Sydney prices at up to 43% overvalued. Even if we’re waaaay off the mark and it’s only 20% overvalued, its enough for us to stay out of the market, particularly as our key economic vitals aren’t helping to inspire (or in any way justify) the bullish propaganda spruced by MSM.

      **of course, we could be completely wrong

    • Fabian AlderseyMEMBER

      Yep, in the end it comes down to each individual’s choices. Some people are content to pay a massive amount of money for a house (and perhaps take on a massive amount of debt). Good luck to them, that’s their choice.

      • Charles Ponzi

        Unfortunately, individual choices are clouded by biased and unscrupulous comments made by journalists, bankers and politicians. Ponzi schemes have perpetrators as well as victims. The real estate property bubble in Australia did not happen by itself.

  5. 4 words for melbourne “low volumes, record stock” this surely equals an oversupply. Prices to continue to drop until this situation reverses.

  6. Charles Ponzi

    Perhaps we should go for a RP-Data hourly index. Watching real estate prices move is more entertaining than the Melbourne Cup. The real money to be lost is on real estate!

    • Great idea. 8 updates a day, 40 minutes apart. Tradeable via your local tote.

  7. ceteris paribus

    I believe the recent uptick is the RP Data index is measuring something- namely the reaction to the rapid decreases in interest rates and the promise of more to come. But I am not sure if the measurement of this reaction is too meaningful or even useful in the longer run.

    The truth lies in the (apparent?) contradiction- the truth is that interests rates are both very much part of and quite separate from house price. (Economic accounting terms shun paradox).

    But when a particular level of interest rate is part of the price, it is only so in terms of a limited time and trajectory.

    The main problem I have with RP Data is the the measuring instrument is too sensitive for the data produced on a daily basis. IMHO, ignore the daily/ weekly posts and look for the longer trends.

    The really short term readings in most cases don’t really matter.

  8. Was just listening to the radio and heard it reported as “back to back rate cuts are being credited with a 1% rise in house prices over the past 12 months”.

    You gotta wonder if it’s deliberate or just complete stupidity.

  9. I say let them believe and buy into the lie that house prices go up, I will wait and pick up their distressed sale when they loose their jobs and house prices have dropped to what they should be which is 3x one average income.

  10. anonysubscribe

    wow! and rismakr calims to be the elaqding reserach house in oz relied on by RBA down!
    are we staffed by nincompoops in this country who lead us astray with soothing noises like, Don’t panic!!!!!!!!!!!!!!’ a la Dad’s army?
    whom do we believe when property observer is full of people talking up the market?
    where’s their credibility? this is a sign of mediocrity in the land of oz.