The ABS's established median house price index was up +4.8 per cent for the March quarter without any seasonal adjustments. In comparison, the RP Data-Rismark Hedonic Index, which covers all property types (as opposed to just detached houses, which results in the ABS excluding one quarter of all homes), was up by +4.2 per cent in March unadjusted.
When we seasonally-adjust the March quarter results, which are typically strong, the growth rate was a more modest +2.9 per cent (RP Data-Rismark are the first provider to ever seasonally-adjust). This is strikingly consistent with the (seasonally adjusted) capital growth recorded in Q2 (+2.9 per cent), Q3 (+2.9 per cent) and Q4 (+3.2 per cent) 2009 using RP Data-Rismark’s hedonic index.
Overall, the ABS numbers simply confirm what we already know, which is that over the last year the housing market has recovered robustly despite relatively weak credit growth.
The ABS's stratified median index tends to be both more volatile and lag RP Data-Rismark's hedonic regression approach, the latter of which is designed to explicitly control for the various biases that can influence house price changes over time (eg, different types of buyers and properties trading in the market).
The two best examples of the havoc these biases can wreak were at the start and end of 2009 (and, it would seem, the first quarter of 2010).
In the March quarter of 2009, the ABS initially reported a huge 2.2 per cent fall in house prices. But RP Data-Rismark's hedonic index recorded circa 2 per cent growth, and continued to do so throughout 2009. The ABS index was being artificially dragged down by the enormous surge of lower income first time buyers coming into the market in Q1, who were purchasing cheaper homes. Since more inexpensive homes sold, the median prices plummeted.
RP Data-Rismark's Index explicitly controls for the price and type of home that transacts, and therefore only provides the true or pure capital growth that home owners actually realise.
As first timers have faded from the market since the second half of 2009 and through to the first quarter of 2010, they have been replaced by higher-income upgraders and investors buying more expensive homes. So once again the ABS's median price index is being artificially lifted by the bias associated with a shift to more expensive properties being sold in the market.
Contrary to media myth, the RBA has privately stated that it believes Australia has amongst the best house price data in the world. The reason for this is that we collect 100 per cent of all sales via our stamp duty system. We also have the broadest menu of property index techniques available for consumers to choose from. For example, RP Data-Rismark offer median price (like the REIA), stratified median price (like APM), hedonic (our gold standard), and repeat-sales index measures (the same as Residex and Case-Shiller), if one is really interested.
If you want to read a good overview of the different house price methods click here.
