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The Economist - Global Housing Markets, Trend Chart; Shows us once again, a property affordability bubble between 2002 and today
Topic Started: 21 Aug 2013, 01:16 AM (8,254 Views)
Dr Kinetoscope
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Shadow
21 Aug 2013, 12:40 PM
The Economist's charts don't show this. Affordability is a function of prices, income, interest rates and bank lending conditions.

The Economist charts omit half of these factors - interest rates and bank lending.

But on the price/income measure, here's an RBA chart which is broadly supportive of the Numbeo data, with the USA having the lowest price/income ratio in the world, and Australia in the middle of the pack with a host of other countries. You can also see that Australia's price/income ratio today is still where it was in 2002, over a decade ago. It has moved closely with that range for 11 years now.

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I'm aware that average to house price doesn't not incorporate interest rates as a factor. But a quick glance at the RBA's benchmark interest rate chart tells us that there is no corrolation between interest rates and the ABS's affordability findings.

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Shadow
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Dr Kinetoscope
21 Aug 2013, 01:00 PM
a quick glance at the RBA's benchmark interest rate chart tells us that there is no corrolation between interest rates and the ABS's affordability findings
Can you expand on this? Which ABS affordability findings are you talking about, and what correlation coefficient did you find?

Can you post up the charts?
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Strindberg
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Dr Kinetoscope
21 Aug 2013, 12:19 PM
Strindberg, the ABS data as presented by the Economist shows conclusively that housing affordability decreased significantly in 2002 and has not improved to any great degree since. It is one of the clearest bubbles I have ever seen on such a chart. To deny this is to deny the ABS statistics.
The ABS data as presented by the Economist doesn't show "housing affordability" and it certainly doesn't show housing affordability for FHBs who borrow most of the money for a house. Housing affordability for such people is determined by the repayments as a proportion of their disposable income.

I posted the chart (from the RBA) for that in my post. That chart is much more relevant for FHB affordability than the price/income chart.

The Economist price/income chart shows the latest price/income ratio to be lower even than it was in Q1 of 2003. The price/income ratio is now lower than it was more than 10 years ago. That is not a bubble by any use of the term.

So, yes, I deny that the chart shows a bubble. I do not deny ABS statistics (as Veritas does repeatedly).
ABS statistics confirm that there is no bubble as follows:

ABS House price index - 8 cap cities weighted average

December 2003 - 101.5
December 2012 - 145.3

House prices rose 43% from Dec 2003 to Dec 2012

Average weekly full time earnings (RBA table G6 column F)

December 2003 - $929.80
December 2012 - $1396.00

Average earnings rose 50% from Dec 2003 to Dec 2012
Edited by Strindberg, 21 Aug 2013, 01:09 PM.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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Veritas
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Shadow
21 Aug 2013, 12:52 PM
Here's the RBA report the chart is taken from...


thanks, it doesn't say as afar as I can see.

Its important; most countries don't make workers automatically save almost 10% of their incomes.

Quote:
 
So, yes, I deny that the chart shows a bubble. I do not deny ABS statistics (as Veritas does repeatedly).


I don't deny them, I question them.

Yesterday, I successfully argued that the ABS methodology in relation to home ownership rates is very misleading.

If we wanted to establish how many adults were home owners ( not merely that they live in homes that are owned by someone else as is the case now) we would ask a very different question which would produce very different results.

No need to thank me for my contribution to the collective learning experience of all concerned.

Edited by Veritas, 21 Aug 2013, 01:11 PM.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Shadow
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Veritas
21 Aug 2013, 01:07 PM
Its important; most countries don't make workers automatically save almost 10% of their incomes. [/b]
Which means they must save for their retirement separately. So for a like-for-like comparison between Australia and other countries, we should either deduct an appropriate retirement savings amount from the other countries' income figures, or else include superannuation in the Australian income figures.

The RBA say they're using national accounts data to ensure the best like-for-like comparison between countries, so I think they've got that covered.
Edited by Shadow, 21 Aug 2013, 01:13 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Strindberg
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Veritas
21 Aug 2013, 01:07 PM


thanks, it doesn't say as afar as I can see.

Its important; most countries don't make workers automatically save almost 10% of their incomes.
Other countries make their workers pay lots of things.

For example, the UK makes their workers pay 12% of their income to National Insurance.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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Shadow
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Evil Mouzealot Specufestor

Veritas
21 Aug 2013, 01:07 PM
Yesterday, I successfully argued that the ABS methodology in relation to home ownership rates is very misleading.
Aside from yourself, who was misled?
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Veritas
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Shadow
21 Aug 2013, 01:14 PM
Veritas
21 Aug 2013, 01:07 PM
Yesterday, I successfully argued that the ABS methodology in relation to home ownership rates is very misleading.
Aside from yourself, who was misled?
Lets not do this dance again.

The fact remains that the obvious shortcoming of the ABS methodology is that we don't have a clue how many adults own the dwellings they live versus those they don't.

And in my book, that means that we don't really know that "the home ownership rate" actually is.

Or perhaps you do?
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Strindberg
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Veritas
21 Aug 2013, 01:07 PM
Quote:
 
I do not deny ABS statistics (as Veritas does repeatedly).

I don't deny them, I question them.
Really?
Quote:
 
Veritas 24 Oct 2012, 05:20 PM Post #106


Those ABS figures are very, very wrong.


Quote:
 
Veritas
12 Apr 2013, 03:59 PM

The ABS is wrong
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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barns
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Veritas
21 Aug 2013, 01:19 PM
Lets not do this dance again.

The fact remains that the obvious shortcoming of the ABS methodology is that we don't have a clue how many adults own the dwellings they live versus those they don't.

And in my book, that means that we don't really know that "the home ownership rate" actually is.

Or perhaps you do?
Veritas - I didn't get into this yesterday but I just can't help myself now:

Have you considered single people vs couples that buy houses. If it's a couple, is there 1 home owner or 2? If 1, what is the other person's status? Do you need a 3rd category of adult other than owner or renter? Is the divorce rate relevant?

What about a single guy that owns a house but takes in 3 boarders? Is that 1 owner and 3 renters? We can count each house 4 times in the statistics. What if he then shacks up with one of the borders; is that then 2 owners and 2 renters? What is that going to tell us?

I'd say that it's pretty common for a husband and wife (registered or unregistered marriage) to be on a title so assuming they are both owners under the new system (because any other status for the 2nd owner would be weird) it's going to nearly double the number of home owners. Renter numbers may nearly double as well (or more, particularly if you consider 18+ children as 'non-owners' and therefore renters (even they they are not renting)) - although more single people rent but also there is more share housing so the results would be hard to predict. Again, in the end what is it going to tell you? Of the, lets say, 16 million adults in Australia 65% are owners and 35% renters? I guess if you could get this series over 40-50 years it could show some trend data but is it really any better than knowing the information from a dwelling perspective?
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
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