ABS housing figures overly gloomy: JP Morgan
Home owners and investors should not read too much gloom into yesterday’s ABS capital city housing data, according to JP Morgan economist Ben Jarman.
December quarter ABS figures showed capital city house prices declined by 1% to be down almost 5% for the year.
However, Jarman says it is “unlikely that dwelling prices generally have been as weak as that” because the figures only represent the more expensive detached house market and does not factor in apartments or townhouses.
End-of-year RP Data-Rismark figures confirm that capital city unit prices held up far better than houses in 2011 registering a drop of 1.5% while capital city house prices fell by 4.3%.
“Due to its narrow composition, [the ABS] result overstates the weakness of the market, while timing issues also obscure stabilisation in the price data shown toward year-end,” Jarman says.
According to Jarman, the lower end of the price spectrum drove the strength of the housing market over 2009, “while the top end of town has borne a disproportionate share of the weakness through the hangover of mid-2010 through 2011.
“Given that the coverage of the House Price Index is arguably biased towards these more expensive properties (detached houses, which tend to be larger properties, in capital cities), it is therefore likely to overstate the weakness of the broader market,” he says.
Another reason to be optimistic about house prices, Jarman says, is the fact that the ABS data collection process is “biased toward results early in the quarter, meaning it gives a somewhat dated snapshot, and also is prone to substantial revisions (as occurred in yesterday’s estimates for prior quarters).
“If anything, the monthly price data look to have improved around year-end, a natural by-product of the affordability metrics returning to trend after a year of gradual price declines, and the protracted on-hold period from the RBA, which was followed by an explicit 50 basis points of monetary support at year-end.”
Furthermore, he says data on housing finance, credit, and reports from mortgage brokers suggest that, “outside of building activity – which has been and we expect will continue to be very depressed – housing is nearing the end of its glide path”.
“We have characterized the housing market as being in a pretty boring space through 2011: certainly not strong, but similarly not disconcertingly weak. We expect that description to hold true again this year, with prices to move approximately sideways through 2012,” Jarman says.
Also commenting on the ABS housing figures, CBA economist James McIntyre says the bank is not surprised that rate cuts thus far have not resulted in rises in house prices.
“Monetary policy takes time. Gains in real house prices have tended to lag shifts in interest rates by around 9 months. Recent rate cuts could see real house price gains in the late second half of 2012,” McIntyre says.
However, McIntyre warns that “nothing is pre-ordained” and says “a continuation of current weak confidence in the economic, particularly global, backdrop could mute any upward momentum, despite healthy gains in wages, rents and household incomes”.
“On the other hand, weak dwelling comments, combined with a potential pickup in population growth from a turnaround in migrant inflows, are two factors supportive of price gains.
“For now, we are comfortable with the view that easing in policy is likely to see the decline in real house prices abate, rather than spark a new appreciation.”
