Yesterday, I uncovered that the CBA-HIA housing affordability index, which shows Australian housing affordability at its most favourable level since March 2002 (see next chart), is built on highly dubious data.
The main issue centres around its dwelling price series, which is based on home loans financed by the CBA during the quarter, and curiously shows that Australian home prices have been falling, despite every other data provider (including the ABS) reporting strong price growth.
This issue is particularly important because the dwelling price data used directly impacts on the monthly mortgage payment, which is a key input into the index (see below table).
A lower dwelling price, other things equal, results in a lower monthly mortgage payment and a higher affordability rating.
The below chart, which plots the median dwelling price as measured by CBA-HIA against the ABS’ median property price index, illustrates the dubiousness of the CBA-HIA’s measure:
Amazingly, CBA-HIA measure of median dwelling prices claims that home values fell by 2.7% in the three years to March 2014, whereas the ABS shows an 11.3% increase in dwelling values over the same period.
Clearly, the CBA-HIA’s affordability index is based on faulty data and its claim that Australian housing affordability is “the best in 12 years” is quite simply wrong.
What is most disappointing is that Australia’s mainstream media has published the CBA-HIA results unchallenged, misleading Australian consumers in the process.