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, August 3, 2012

Who is Steve Keen trying to fool (charts)?

Earlier this week infamous housing commentator Steve Keen acknowledged that he "guessed wrong" on Australian house prices following the ABS's confirmation that they were rising again. (The ABS estimates they were flat in Q1 and appreciating in Q2).

Keen had repeatedly forecast on the record that the rate of Australian house prices falls, which started in 2011, would begin 'accelerating'. He also confidently stated that he would "let the data do the talking". Of course, as I anticipated here, nothing remotely like Keen's prediction has materialised. (Nor, disappointingly, has he allowed the house price data to do the talking.)

Keen attributed his latest error to the claim that Australian "mortgage debt has accelerated." His exact words on Twitter. Now, this has only one meaning: credit growth has increased. There is no other way you can interpret the statement. Unfortunately for Keen, this was also wrong: the rate at which housing credit has been expanding has not been accelerating at all. The chart below shows the official monthly housing credit growth data from the RBA. Observe how the bars trend downwards since 2009. (As we've long argued, housing credit growth has been tracking household income growth since about 2006.)

Recognising this new mistake, which was forcefully pointed out by economist and former Gillard advisor, Stephen Koukoulas, amongst several others, Keen then proceeded to explain that, no, he was not actually talking about credit growth per se. He was talking about the "change in the change" in housing credit. Actually, he was not even talking about the change in the change. In this post Keen explains he was referring to, "the change in the change in mortgage debt over a year, divided by GDP at the midpoint of that year." 

Keen says he wants to be judged against the ABS house price index. He's made three high profile forecasts. One was for a 40% decline in Aussie house prices in 2008, which he seems to have subsequently modified to a 20% correction. And then he confidently informed us the rate at which prices were falling in 2011 and 2012 would 'accelerate'. You can see the first two forecasts highlighted by the stars in the chart below.

The bottom line is that Aussie house prices are currently 9% higher than when he originally made his prediction. The losses have not accelerated. They have, in fact, stopped, for the time being, with prices rising again.

Finally, I note that Keen is now starting to refer to house price growth after deducting consumer price inflation, or 'real' as opposed to actual or 'nominal' house prices. Yet he has previously clarified that his forecasts--and his bet with Rory Robertson--related to nominal (ie, actual) house prices, not house price growth after inflation. I sense some goal-post shifting.