Residex challenges data provider’s rosy view of housing market

By Leith van Onselen

Yesterday, Residex released its house and unit price results for the month of August. According to Residex, house prices nationally fell by -0.8% over the month, although prices rose across most of Australia’s sub-markets:

Results were better for the unit market, with prices down by only -0.06%, with mixed results across the sub-markets:

I will openly admit that I have never understood how Residex’s national result is derived as it often seems inconsistent with results in the sub-markets. Thankfully, Residex CEO, John Edwards, this month provides an explanation:

Residex provides the median outcome of all houses in the market on which it is reporting. It does not report a weighted average for the various sub markets. That is, if Residex is reporting the median house price for Australia, it does not weight and average the outcome for each capital city. Residex’s method provides a much better indication of how the market is travelling. It shows what is happening to the housing assets that fall in the median of all houses in Australia rather than providing the median of a mathematical construct. This means that good results in smaller markets (such as Perth) will not overly influence the results; however, the performance of the larger city markets can have a significant impact on the outcome. It also means that the Australian-wide outcome may not be intuitively obvious as a result of considering the median outcome of each city.

As usual, the most interesting aspect of Residex’s release is John Edward’s commentary on the market. This month Edwards outlines why he still views the housing market as “fragile” and moving forward at a “snail’s pace”:

Although housing markets have shown signs of improvement recently, these are progressing at a snail’s pace and remain fragile. Decisions made by governments and the Reserve Bank could arguably be the ‘wrong’ choices as far as Australian housing markets are concerned and could potentially cause undesirable outcomes.

I have to wonder if state governments and the Federal Government have lost sight of the reason for governing. It seems that it has become more about scoring points and staying in power rather than working together for the best interest of the population. The time for governments to work together to restore consumer confidence in our nation has become critical. We are currently experiencing what I can describe as nothing other than an avalanche of what are, in my opinion, foolish government actions.

The mining industry has been hit hard by the government. First, it was the Federal Government’s Carbon Tax and then the Resource Tax being introduced to ensure a political benefit from a budget surplus. States are unhappy because they don’t feel that the Federal Government is being even handed with the distribution of the GST take. States are retaliating and doing what they can to gather cash to keep their budgets at acceptable levels. The results we are seeing are increases in royalties and significant job shedding at a state level.

I am left wondering what has to happen to have all governments work as a team for the collective good of Australia. The reality is that Australia is headed for trouble if the resources economy stalls badly and unemployment increases. Australia needs to move to remove the Carbon Tax and the Resource Tax and implement a GST to compensate, and maintain a climate where Australian corporations are internationally competitive in the global market, which is contracting due to the difficulties in the U.S. and Europe.

Edwards also takes a stab at the other data providers, arguing that they are painting an overly optimistic view of the market:

I strongly believe that housing data being published by other market researchers in the press does not present an accurate picture of what is happening. In fact, it is probably the reason why reported figures are not in line with other indicators of what is happening in the market to the ordinary Australian. My point is very simple: the total dwelling statistics being reported suggest that the majority of property owners in Australia are seeing growth in their principal asset hence they should be feeling more comfortable, starting to spend a little and increasing their activity in housing markets. If this were the case, consumer sentiment surveys would also point to a more confident population…

I believe that, given the current interest rate setting is attractive, the market should be moving forward more strongly than what we are seeing.

Auction clearance rates are stubbornly holding within the 50-60 per cent range. Latest ABS figures suggest housing finance numbers fell by 1.4 per cent for owner occupiers and 2.7 per cent for investors. Based on these figures, it is difficult to believe that the market is as robust as the press is suggesting. According to Residex calculations, capital growth, which is currently more volatile than normal, is again trending down, lending credence to the view that consumers are concerned and uncertain of the future. The Westpac Melbourne Institute Index of Consumer Sentiment confirms this, reporting that it rose by 1.6% in September from 96.6 in August to 98.2 in September. While this is a slight increase, it is also stubbornly holding below the 100 point level. This is now longest duration of sub 100 points since the early 1990s.

I believe the slow pace to better times is a result of uncertainty and that any significant improvement won’t be seen until there is uplift in sentiment.

I note the comments made by the Federal Minister for Resources, Martin Ferguson in late August where he very publicly and directly stated that the nation’s mining boom was over the day following BHP Billiton announced it would not approve the Olympic Dam open-pit expansion in South Australia in order to ‘substantially improve the economics of the project.’ BHP Biliton CEO Marius Klopper stated that weak commodity prices and increased capital costs were behind the decision.

The simple truth is, in an environment where sentiment is fragile negative news accumulates and contributes to low consumer sentiment. This is perhaps partially responsible for the market downturn in the dwelling price growth in August, after the growth that appeared to be getting underway in July. I also note that the press was reporting a slowing in the Chinese economy in August.

I accept my above statements are somewhat downbeat; however this is based on the average market position that exists for the median property in any given city. Areas within a city are not all going to perform at the same rate as the median. There will be areas the perform better or worse that the city market as a whole.

For those that are interested, John Edwards’ recent video interview on Switzer is also worth a look.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.


Leith van Onselen


    • That’s interesting – data will never be free though Mav – it costs too much to mine as well.

      The “free” data that groups like on the house release, can often give people dangerous expectations. There is nothing like a full property report and a thorough inspection to get the full picture.

      A little knowledge can be a dangerous thing.

      • PF
        I think the data will be free, as perhaps it should be.
        You can see apps and websites mining various data for free data now.
        I think this trend will continue.

      • Data will be free when the federal government decides to stop handing over responsibility for various property measures to vested interests (RP Data indices are a classic case in point) and the state governments make details of property transactions available from their relevant bodies in a timely manner.

        Then, if one wishes to choose a propaganda report from the various outlets available, then they can choose to do so.

        • Bobby the data is owned by the state governments, not by the Commonwealth. State governments sell the data – they always have. Several groups act as resellers of that data under contract with the state governments. It has to be collated on large databases, and then servers with a huge broadband width are required to provide the information via the internet. There is no way it can ever be done for free without the states giving up revenue and the resellers who have expensive contacts in place, agreeing to work for nothing – so you will appreciate that what you ask for is no simple task.

          We can build scrapers to access a lot of information, but actual sales and actual sales prices are behind secure websites, they are not in the public domain, and any data from those pages cannot legally be passed on (if they could be accessed)

          You can call your local MP but getting the Commonwealth and States to agree, and to convince the states to give up revenue at this moment in time, might be one stretch too far.

          But it’s your right to ask. Best of luck with it.

          • allhomes manages to provide over a decades’ worth of sales history free to users for Canberra and Queanbeyan.

  1. “… David Jones is reviewing opportunities to unlock the value of its property portfolio”. Eventually this will happen to many of those with unmanageable debt. Even with mortgage rates at,say, 3% time will beat those imprisoned in a market that they have to leave for either work or other lifestyle the inevitable aging that will hit all of us. Where goes David Jones, go we….

  2. The federal government wants lower house prices, in the common good. They are standing by with antiseptic and bandages while claiming to be agnostic as to outcomes.

    There is no evidence of any plans beyond conventional palliatives of bank liquidity and solvency and measures, i rate cuts, exchange rate falls, spending and borrowing. These instruments will give us outcomes identical to Japan, USA and Europe.

    How about a Debt Jubilee instead, lads!

    • So David, youo suggest that we all load up with debt, and then it gets forgiven. Personally I think that sends completely the wrong message to the populace.

      Debt should be respected. There is no magic wand to make it disappear.

      • Ah, PF, you are back with your inane comments! Did you realize you and your spruiking were being missed? How was the break? 🙂

        • I’m not sure whether to welcome PF back or not. Let me dissect his comment.

          “…youo suggest that we all load up with debt, and then it gets forgiven.”

          No, we are already so overloaded with personal debt – mainly mortgages – that paying it down the hard way will stunt economic performance for decades. See: Japan. Steve Keen’s Debt Jubilee idea of giving every citizen say $30,000 provided they use it firstly to pay down any debt would make a profound difference to our financialized lives.

          “Personally I think that sends completely the wrong message to the populace. Debt should be respected.”

          I wonder if you realise how patronizing your attitude is. Conventional economic settings for a land bust enmesh banks in foreclosures, debt writeoffs and liquidation. Debt that can’t be paid won’t be paid. What level of respect is accorded to unpayable debt?

          “There is no magic wand to make it disappear.”

          Under an SK Debt Jubilee, the government assumes that final slice of debt – the most precarious piece – making the banks whole and giving citizens respite from debt-slavery. So, no magic wand here, but a reset for people AND banks.

          • David, it would be just an invitation for them to do it all again.

            Tell me, do you think that is wise?

            Buy a Rolls Royce today on credit – write off the debt tomorrow – but keep the Rolls. Where do I sign?

            It can’t be done David.

          • “David, it would be just an invitation for them to do it all again.”

            If by “them” you mean the banks then you are wrong.

            A Keensian debt jubilee would scar the banksters so badly that would probably take 3 or more generations for them to recover.

            Remember: a mega mortgage mug cannot be a mega mortgage mug if no one wants to give him a mortgage.

          • For once im inclined to agree with PF.

            You cannot simply reset the debt/credit switch and give everyone who made the p***-poor dicision of taking on mountains of debt in a bubble a free pass out.

            People can and will only learn from this the hard way – PAIN.

            As a prudent saver I cannot accept a debt jubilee as an option for a generation of idiots too stupid to do some research and think for themselves.

            Bring on the hurt I say.

          • I am debt-free, but I am in. where do I sign up?

            People don’t seem to realise that Keen’s debt jubliee is the exact OPPOSITE of Quantitative Easing:
            1. Bankers will be punished – lower total debt levels = lower bonuses.

            2. Borrowers will neither be punished nor rewarded – they will be forced to use the money to extinguish part of their existing debt.

            3. Savers will be rewarded – they will have additional debt-free money to spend or save as they see fit.

            A far, far better idea than Quantitative Easing, which increases debt levels, rewards bankers, borrowers and punishes savers.

          • Well put Mav. That is the simplest and best explanation of the modern debt jubilee that I have read. Savers would GET REWARDED not punished. By contrast, the banks and debtors would suffer (relatively speaking). This is a far better option than QE, which does the opposite (as explained by Mav).

          • “Can you explain how the banks would be scarred by a debt jubilee?”

            Under Keen’s “modern debt jubilee” an equal amount of money would be deposited in the accounts of *both* debtors and savers, with the condition that debtors would have to use that money to first pay down their debt.

            Therefore the total amount of money in the economy would remain constant. Interest bearing credit money would be destroyed and replaced by interest free fiat money.

            This would mean the banksters would have a dramatically reduced income – since the interest paid by the public would decrease. The FIRE sector would have to shrink in size to handle the lower income – which is a good thing.

            It’s an extremely clever idea – you can read the details on the good professors blog:

          • In all likelihood we will bail out the banks and let the people be damned.
            Even the forementioned people will be cheering for that.

            I wish I was a bank.

          • The Keen Jubilee has ramifications further than the “wipe out the debt” phase, and requires a little more deeper thought than the “we’ll be rooned” comments here (mainly from vested interests or those who dont understand that savers will be rewarded).

            First, it means banks become utilities again – i.e their ROE drops from government subsidised high teens to mid/high single digits, just like an electricity company or listed infrastructure fund. Stable, sturdy, low returns. As they should be.

            Max LVR’s would drops dramatically – to what they should have been in the first place, as would loan maturities.

            So it would be back to 20 year loans max (possibly even 10-15 years, which is even better), with a minimum deposit of 25%, preferably 30% or more (i.e Max LVR of 70%)

            Credit rationing all round. Again – excellent to rebalance the economy to means of production, not speculation.

            But this innovation needs to be combined with a massive Glass Steagall type reform – none of the banks/ADI should be allowed to own any other TYPE OF FINANCIAL COMPANY.

            i.e no wealth management, no trading banks, no commercial banks, institutional banking. None – they have to be separate arms, indeed, as I’ve said many time before – I would reintroduce unlimited partnership rules for non deposit taking financial institutions, including superannuation management firms.

            That is if the management cocks up, they pay with their own funds. They are “unbailoutable” – and hence they become smaller and no one cares if 1 or 2 go bust a week.

            This would dramatically reduce the size of the FIRE sector – by 2/3rds or even 3/4’s which would be fantastic for the economy in the long run.

            Oh – and I can bet you a penny or more that ANYONE who had large debts before the jubilee would find it EXTREMELY HARD to get credit extended to them post-Jubilee.

            Which is the whole bloody point. The savers would be rewarded double – imagine, you’re a saver, or your mortgage was tiny because you were prudent – are you going to get that loan to buy a Rolls Royce or the young couple who had a 95% LVR 30 year loan that was wiped out?

          • Its the just the thought of giving any financial help to anyone in debt that I cannot accept. Regardless of the savers being further ahead in a DJ, I cannot see how being given a sum of money to pay off the debt and therefore own their house, car etc… is anything other than a positive for a group that should have to go through the pain to understand that debt is bad.

            Then again I am someone who has very little compassion or sympathy for idiots who get themselves into this mess.

          • Would you prefer that your family and friends suffer double digit unemployment, or that NOBODY gets a loan to start a business as credit freezes just so these “idiots” can suffer?

            Again, think beyond the one-off debt repayment “reward”. These “idiots” will be red penned by every financial institution in the country. How hard do you think it will be for them to ever get another loan? Contrast that with the prudent borrowers (and admittedly some lucky early speculators) who will not have that blemish on their record.

          • How is paying out the debt of a borrower not a reward to the borrower?

            Have you ever told children they can’t have lollies (jubilee money) because they behaved badly? It’s not like you beat them with a stick, but they still feel bad and sulk anyway.

            Austerity driven collective punishment of a large mass of people is all fine in theory. But they’ll always end up blaming someone else (usually a weaker & innocent minority) for their pain. And the next thing you know, you’ll have Golden Dawn elected to parliament.

          • Couple of things on this idea. Where does the 660 trillion AUD come from? What’s to stop people using existing drawdown facilities to take the money straight back out?

          • “Where does the 660 trillion AUD come from?”

            Where did it come from in the first place? i.e. where did the banks get it from to lend out?

            It came from thin air.

          • I’m still trying to work out who the spruiker is – it must be the “free money” crowd.

            It’s irrelevant anyway – it will never happen.

          • The debt jubliee is like pressing the reset button. Everyone will start fresh with clean balance sheets.

            But how long will this last? History is clear that people’s memory does not last long, and it looks like getting shorter. In a decade or so we may find that we are back to where we are today. Unless somebody comes up with drastic genetic engineering that changes the nature of people, history will simply repeat itself.

          • A modern debt jubilee could certainly be done but I’d suggest that –
            A. The bail-out-the-banks solution which has failed elsewhere must first be allowed to fail here before it could be considered; and
            B. if it were to be done, it would be done in a compromised fashion with money just going to debtors not savers. The last thing governments and central banks would want to do is reward prudent savers.

          • Giving every Australian $30,000 would cause massive amounts of inflation, and exacerbate our problems drastically.

            You can force borrowers to put it on their mortgages, but you can’t prevent borrowers from taking out a new loan / increasing their loan immediately afterwards. I’d predict the total debt we’d have would be not only back to current levels within 6 months – but far surpassing it. There are a number of reasons:

            Giving $30k to those without debt is obviously going to see just about everything across the economy selling out. The surge in demand for new kitchens, new houses, new cars and tvs and washing machines and new *everything* would be far in excess of what we can actually supply. This would give us inflation – very strong inflation.

            Giving $30,000 to those with a betting mind, they would see this inflation and place their bets accordingly. Obviously with high inflation around the corner we’ll see high wages growth and high nominal growth in asset classes like property. So contrary to paying off debt, we’d have a massive incentive to take on more debt to leverage the benefits of the upcoming wave of high inflation.

            After all, cash is a horrible horrible thing to hold onto during high inflation as you are having an additional tax eat away at your lifes work. Incidentally, anyone who tried to be frugal and save would be belted around and suffer majorly – despite also getting the $30k ‘cash boost’.

            Contrastly, anyone who had gambled and borrowed and held on to highly leveraged assets would benefit massively as their asset prices and equity increases through government manipulation. The greater your gambling (the more your leveraging) the more you would be rewarded through the asset price increases.

            Far from solving the problem I’d expect this to make it much much *much* worse. People with 30% leverage on their houses would pump it up to 90% and buy another 6 houses on 10% deposits. I would. After a year or two of equity growth I’d also buy a nice place overseas so that I could leave when everything fell apart here.

            The instability in the value of the currency would also severely disrupt trade – both domestic and international. The currency rate would go wild, contracts would be broken, deals no longer made. Foreign investment would fall off the charts. The real parts of the economy (the parts that actually do things that help people in some way) would flounder as speculation and gambling became the only route to prosperity – even moreso.

            Frankly, there must be more to this idea than I understand, because printing $600b sounds to me like saying our solution is to become Zimbabwe – it sounds crazy.

      • You’re right Peter. Whatever wand one waves over debt, someone ends up with it. Even with a Jubilee, the current owners of it do. They will get their confiscated money back, one day, one way…..

      • I agree Peter, will send wrong message and won’t punish those who did wrong thing, but on the other hand we could be looking at decades of ongoing pain if the debt burden isn’t reduced via high inflation or some other means such as debt jubilee…

        • BB, that depends on who you deem responsible? is it the bankers or the homeowner who listened and trusted the media and just wanted a place to live (and chose not to rent)? What alternative does something who really does not want to rent have but to get a mortgage. That is the premise of the Debt Jubilee, not to punish debtors but creditors agreed most people should be better educated financially, but if you want to stop excessive debt, charge the dealers not the users.

        • UE, this idea begs for further debate. May I suggest a guest post from the good professor to lay out his logic and the blogsphere can go nuts in the comments.

          (while I have watched with care, I am yet to see a fully consolidated Steve Keen Modern Debt Jubilee doc)

          Don’t Buy Now!

    • A debt jubilee? Surely you jest? Whatever happened to personal responsibility? That’s what’s wrong with economies and societies today….no responsibility is taken for anything at a personal or corporate level. As if we need anymore moral hazard.

      • Here is my idea. I absolutely agree that it is utterly wrong to feed “QE” into the economy via the banks – this is wrong on all levels – morally, and in terms of its effectiveness, period.

        Steve Keen is on the right track by suggesting that the banks should be bypassed altogether and the money put into the economy in a way where it will at least have the most direct effect according to what the policy is meant to do i.e. stimulate the economy. Banks building up their reserves with QE money, does not stimulate the economy and only increases the volatility that will return when they do start “leveraging” again.

        But there is an even more efficient way to stimulate the economy, with even less QE, and even more moral. Just use the money to REFUND some proportion of the tax everyone paid LAST YEAR. You tell me where is any moral hazard or perverse incentives in this?

        • Just use the money to REFUND some proportion of the tax everyone paid LAST YEAR.

          Precisely. With the proviso that those with mortgages will have to use it to pay down their debt.

          It is very obvious that Steve Keen would make a bad politician or a marketing guy.

          Orwellian names is a rage among US pollies – Patriot Act, JOBS Act – which do precisely the opposite. Instead of calling it debt jubilee, he should call it something more attractive and suitably Orwellian, like Save Our Banksters (SOB).

  3. The New Zealand Reserve Bank Governor is doing his valedictory speeches this week. Here’s what he is telling his fellow countrymen:
    “Dr Bollard admits more could have been done to control the housing market boom. “From pure hindsight, we might have pushed a bit harder in the middle 2000s. “We might have tried out some of these macro financial instruments, basically making capital more expensive for banks and making them less interested in lending as freely. But he says if New Zealanders are set on borrowing from foreigners to invest in housing, then bad effects are inevitable and “that’s pretty much what happened”.. Do we think Dr. Bollard is making theses speeches in isolation of either the NZ Government or indeed, Glenn Stevens?!

  4. Janet the answer to your last question is absolutely yes in the case of the NZ Government. I dont know about Stevens.The RBNZ was, is and will remain very independent of NZ politicians.Alan B is simply saying what all central bankers know but are reluctant to say-they screwed up because they were captured by the Greenspan orthodoxy that bubbles couldn’t be identified for sure, the collateral damage from popping them was too great and the best thing CBs could do was mop up well afterwards.We have all learnt a thing or two.

    • Yeah, but at least Don Brash as governor of the RBNZ complained/predicted way back in 1996, that urban growth constraints rendered monetary policy less and less potent. That is, “supply” was unable to respond to demand for housing. Therefore, trying to kill a housing bubble with monetary policy risks killing the rest of the economy in the process.

      A few years ago, Stevens and Richards and their colleagues at the RBA were also talking sense on this, while it was Bollard who didn’t seem to have a clue. But someone got to the RBA, they seem to have decided they could handle it after all, but since they made this decision, median multiples in Australian cities have risen from an already-bad 4.5 – 8.0 level, to more like 6.0 – 9.5. So if that is the smartest possible monetary policy tackling a housing bubble, and not leaving it till mopping up afterwards, I am not impressed. A dollar of debt is a dollar of debt.

      Then it was the RBNZ that came out with a hard-hitting submission to the Commission of Inquiry into Housing Affordability last year, condemning urban growth constraints just as if nothing had changed since Brash’s time.

      • You know, a pretty effective way to prevent a housing bubble or a land bubble from growing out of hand is to introduce appropriate level of land tax, say 3% of the land value per year. This will force land owners to utilize their land for productive purposes. And no, central banks will have no role to play here.

  5. Speaking of stimulating debt fuelled consumption, in the last few weeks there has been a proliferation of new car sales advertising referring to a “0.5% comparison rate”.

    An unsophisticated but excited aquaintance of limited means and substantial debts explained to me that he could buy a brand new $30k holden ute for $0 up front at 0.5% interest. I told him he must be mistaken.

    I read the financing fine print on the ad and it is more opaque than the Brisbane river in January.

    Can anyone explain what a comparison rate is and what it means to the mug punter trying to buy a new car?

    • The Comparison rate is meant to be a simplified rate that also adds in fees and charges. That was supposed to make it easier to “compare” different loan products, some of which have lower rates but higher charges, whilst others have higher rates and lower fees and charges. If you’re thinking that it’s all designed to confuse you, then you would be correct.

      Unfortunately public servants drew up the details for displaying that rate, and I consider it meaningless.

      Get the cold hard facts in dollars and cents and compare that, including any fees. That’s the best “comparison rate” available.

      • So you add the 0.5% to a nominal interest rate to come to a figure that includes the fees and charges so you can compare it to a finance package that doesn’t have fees and charges?

        No wonder these monkeys get into so much trouble.

        • Patrician,

          I assume you are referring to this:

          I have to be honest I really don’t understand what they mean. I see comparison rates used a lot but only when compared against the actual rate the institution is offering ie. we offer loan at 8% (comparison rate 9%).

          To refer only to a comparison rate (and such a low one at that) is odd to say the least.

          This ad is I would assume deliberately misleading.

          • I’m pretty sure that what they are doing is offering a very low interest rate financing package instead of discounting the price of the car. Much like Harvey Norman and their ubiquitous X month interest free offers.