In the latest edition of the Statement on Monetary Policy there are two discernible changes. First, the RBA has offered clear guidance as to the house price measures it follows most closely. Specifically, the RBA opines:
“Conditions have been quite buoyant in the established housing market, with capital city housing prices increasing by around 3–4 per cent in the December quarter and by around 10–12 per cent over the year.”
If you examine Table 7, which is extracted below, you can see that the 3-4 per cent range for the December quarter, and 10-12 per cent estimate over the year, correlate almost exactly to the band between the RP Data-Rismark hedonic and APM stratified median price proxies. (To understand the differences between these indices, click here.)
For the pedants out there, the RP Data-Rismark estimate of +2.8 per cent during the December quarter is based on a quarterly hedonic regression index and not the more timely monthly measure we prefer to report. This is presumably to ensure that the RP Data-Rismark index results can be compared on a ‘like-for-like’ basis with the quarterly estimates furnished by the ABS and APM. (The ABS and APM do not supply index results on a monthly basis like RP Data-Rismark because of the volatility/noise associated with their measures over higher-frequency periods).
Another point worth mentioning in Table 7 is that the RP Data-Rismark hedonic index exhibits the lowest capital growth for the 2009 year. Yet it also displays the most modest estimate of the peak-to-trough price declines. This likely reflects the considerably lower ‘noise’ associated with the index, which used a hedonic regression technique to control for compositional biases more explicitly than the simpler alternatives employed by APM and the ABS.
The other distinguishing characteristic of this SoMP is that the RBA has included ‘regional’ area house price indicators for the first time. These are supplied by RP Data-Rismark and APM. While there is a relatively strong commonality between the much more liquid (read high turnover) capital city indices, APM and RP Data-Rismark divorce somewhat more meaningfully from each other when it comes to non-capital city markets. I am not sure how APM go about producing their benchmark, but I know that RP Data-Rismark include every house not located in a capital city according to the ABS’s definition of the latter. In this way, the index includes outer metro, regional and rural areas.
Finally, the RBA has graphically illustrated the performance of the RP Data-Rismark Hedonic Index stratified by the 20 per cent least expensive suburbs, the middle 60 per cent of the market, and the 20 per cent most expensive suburbs. This is displayed in the second panel of Graph 42. And the story is a familiar one: the millionaires got the best of the boom but the worst of the bust. In comparison, the least expensive suburbs have ground out solid returns with much lower risk. (I should also add here that the RBA came up with the idea of analysing the data in this way.)
All told, another excellent effort by the Bank! Congratulations should, more particularly, go to unsung heroes like Paul Bloxham and Natasha Cassidy, who are ably led by the RBA’s internal housing swami.
