The ABS result is exactly what we predicted last week. It represents the strongest quarterly rise the ABS has recorded in more than six years. Importantly, the 5.2 per cent growth claimed by the ABS is more than twice the 2.1 per cent increase measured by RP Data-Rismark’s more sophisticated hedonic house price index. In contrast to the ABS, RP Data-Rismark’s index also includes all property types, not just detached houses.
As we explained last week, the ABS’s median price numbers are being artificially inflated by the fading of first timers, who are being replaced by upgraders buying more expensive homes. This so-called “compositional bias”, which has nothing to do with actual house price changes, nevertheless drags up the “median” (or middle) price—even with a stratified index.
Exactly the same effect occurred in reverse in the first quarter of 2009. At that time, RP Data-Rismark’s hedonic index, which explicitly controls for compositional biases, reported strong house price growth. Yet the ABS’s initial results showed the largest quarterly house price fall on record. In the first quarter of 2009 the ABS numbers were being dragged down by the unprecedented surge of first time buyers acquiring cheaper homes due to the government’s “boost”. In this way the median price fell even though house prices were actually rising. Now the opposite effect has come to pass as first time buyer participation has plummeted from its record highs.
While the ABS results will no doubt trigger the inevitable media excitement, the hard empirical fact is that Australian homes have been recording consistent capital growth of about 2-3 per cent per quarter since the start of 2009. It is comforting to note, however, that Australian house price growth has not outpaced the growth in household disposable incomes since around 2002.
