Magical home price affordability exposed

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By Leith van Onselen

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.

ScreenHunter_2609 May. 28 12.50

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).

ScreenHunter_2623 May. 29 13.23

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:

ScreenHunter_2625 May. 29 13.39

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.

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Comments

    • I don’t have all the facts but on it’s face, from what H&H is saying, this is arguably misleading & deceptive conduct to further the commercial interests of HIA’s members. Maybe someone could try to seek legal advice on getting a declaration from the Federal Court to this effect, as well as to restrain further conduct on these lines and to publish a retraction of the offending index. Section 18 of Schedule 2 of the Australian Competition and Consumer Act looks to be a place to start.

  1. GunnamattaMEMBER

    ‘ …….Medic!’

    We need 30CC’s of Property spruik here.

    Get through to HQ, tell ’em we are being shelled by disbelief.

    Seriously though. This is instance #umpteen zillion of us being bombarded with utter bullshido in the cause of cultivating or justifying rising or uber high residential real estate prices.

    At what point do we need to put pictures of scarred property buyers on advertising?

  2. The notion that the median price of homes financed by the CBA is moving in the opposite direction to the apparent value of homes as surveyed by the ABS is an interesting one, and seems worthy of investigation itself.

    The gap is massive, and apparently a recent development.

    A greater proportion of homes at the upper end than previous are purchased with cash?

    CBA’s customer base is different to Australia at large?

    ???

    • flyingfoxMEMBER

      Foreign buyers being financed from overseas …

      Edit: Also as another poster pointed out, investor composition changing.

    • Commenter2095

      Not necessarily a difference customer base, it could just be that the houses being traded now are less valuable than the ones being traded a few years ago.

  3. Nothing wrong here. Only the report has going through a spacetime wormhole and landed in parralel universe. What happens here is opposite in parallel universe. Nazi won the WWII. No trouble in middle east and Chinese all speak Japanese, likewise OZ schools are teaching in both English and Japanese. Our head of state will not be QEII, Blablabla…..

  4. General Disarray

    I sent in an email to Media Watch with links to UE’s work. Hopefully they’ll cover this.

    This is media negligence.

  5. The antics with respect to these mixed measures for housing affordability have been known about for years / decades within the property industry.

    I explained this within a SMH article a number of years ago … “Report; Housing affordability out of sync with incomes” …

    http://news.domain.com.au/domain/home-investor-centre/report-housing-affordability-out-of-sync-with-incomes-20110202-1ad3m.html

    …. and late 2012 to New Zealanders with “Mixed housing measures are technically unsound” …

    http://www.scoop.co.nz/stories/PO1210/S00121/mixed-housing-measures-are-technically-unsound.htm

    In contrast, the Annual Demographia International Housing Affordability Survey http://www.demographia.com is a “clean measure”, where the incomes, house prices and multiples are clearly set out

    Additionally … there is a world of difference between “housing affordability” and “mortgage affordability”.

    Responsible media should ignore the mixed measures.

    Sadly, business often wonders why it’s not trusted in the community. The HIA and the CBA need to think about that.

    Hugh Pavletich
    Co-author Annual Demographia International Housing Affordability Survey
    http://www.demographia.com

  6. clone278MEMBER

    The other thing that annoys me is when they compare a median house price against an average income as that in itself shows lack of precision. Just looking at 2011 figures for income, the average is 73k versus a median of 57k. Now that’s apples versus pears..

    • “…that in itself shows lack of precision.”

      I don’ think it’s a lack of precision – it’s a deliberate (and common) attempt to deceive.

    • Ha ha comments are now closed otherwise I would have linked to this story! Some good uproar there with business day getting the flack for publishing this without fact checking. Thanks leith!