The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Friday, May 20, 2011

Silly housing data debates Mk V...

A reader pointed me to an article written by the owner of a small (and notionally competing) housing data provider, which attempts to criticise RP Data and Rismark for reporting "seasonally-adjusted" house price index results. This really takes the cake. Allow me to offer up a few facts.

First, the Reserve Bank of Australia explicitly requested that Rismark and RP Data produce seasonally-adjusted index results precisely because it is a proven empirical fact (documented by both the RBA and ourselves) that Australian house price movements are highly seasonal, as they are elsewhere around the world. This is intuitively understood by the man on the street. The housing market effectively dies down over the summer months, and revitalises again during Easter and Spring. In the RBA's Statement on Monetary Policy, the Bank seasonally-adjusts all the house price index data it reports from RP Data-Rismark, APM and the ABS. I would note that the second-tier data provider in question was dropped several years ago from the RBA's publications.

Second, as most people know, the Australian Bureau of Statistics seasonally-adjusts most economic data that displays seasonal characteristics. This is standard statistical practice. In the US, all house price index data--from the well-known Case-Shiller indices to broader FHFA measures--are also seasonally-adjusted.

The importance of seasonal-adjustment can be demonstrated by this example. A couple of years ago, our index reported a negative result for the month of December after a run of strong outcomes. Taken at face value, this might have been indicative of a turning point. After all, house prices had fallen in raw terms. But, seasonally-adjusted, it turned out that the negative December number was actually very positive given that the market tends to cool significantly at this time of the year.

Third, as you can see from our monthly media release, RP Data and Rismark go to great lengths to report both the "raw" and "seasonally-adjusted" house price findings. This is because we believe there is value in both. For example, on a seasonally-adjusted basis, our first quarter numbers were down about 2%. However, in raw, or actual terms, they were only off circa 0.4%. What this tells us is that Q1 was very weak relative to what one would normally expect at this time of the year. Yet if you wanted to formally mark-to-market an investment portfolio, you would use the raw numbers, which while also soft were not as weak as their seasonally-adjusted counterparts.

As a final comment, another competing housing information provider criticised RP Data and Rismark on TV the other night for putting a purportedly positive spin on our data because of claimed conflicts (in RP Data's case, the fact they service 70-80% of all real estate participants, and, in our case, the fact that we provide risk solutions that enable individuals or institutions to go long or short the market). While this was just a transparent attempt by the individual in question to advance his own commercial agenda, it is worthwhile highlighting two points.

1/ RP Data and Rismark's house price forecasts have been extremely accurate, and substantially superior to the hyperbolic and empirically incorrect claims made by this competitor (eg, regularly predicting precipitous house price falls in order to attract media attention). Because RP Data and Rismark only thought that Australia's housing market would suffer a modest correction during the GFC, critics argued we were bullish. Likewise, because our models accurately predicted the quick recovery, those who got things relentlessly wrong sought to find fault. Ironically, we have been amongst the most bearish analysts in the market since the start of last year, having once again correctly forecast the mid 2010 soft-landing, and the subsequent flat-lining in conditions; and

2/ RP Data and Rismark's house price information is today regarded as demonstrably superior to any alternative supplier, and the explicitly preferred benchmark of the RBA, Treasury, the ASX and pretty much every economic analyst in Australia. Here is what a few of them have to say:

“RP Data-Rismark’s monthly estimates are more timely and reliable than the ABS’s quarterly readings” Rory Robertson, Westpac

“The RP Data-Rismark index has emerged as Australia’s authoritative source on home price trends.” Craig James, CommSec

“RP Data-Rismark are the RBA’s “preferred data analysts' for house prices.” Bill Evans, Westpac

“RP Data-Rismark’s…analysis is first-rate and backed by one of the nation’s top research teams that focus exclusively on this area.” Paul Braddick, ANZ

“In our view, [RP Data-Rismark’s index] is conceptually the best of the house price series available, especially considering it is based upon transactions (not settlement date), is available for rural and city areas and appears to have better turning point characteristics than other house price series… “Tim Toohey, Goldman Sachs