Saturday, October 9, 2010

"Australia does not have a bubble brewing"

Australia does not have a bubble brewing in its domestic property market, in part because the pace of growth in house prices has been matched by the pace of gains in household incomes, a top central banker said on Friday. From the Economist (subscription required) via Reuters
The Economist itself has a great interactive chart addressing this exact issue. When you pull it up, you can adjust the right pop-up to Q2 2010, but it doesn't default to that. You can select price relative to income on the top pop-up, then again adjust the right hand year.

Snapshots are reproduced below, taken from the economist chart linked above.

Australia, China, Canada, United States prices against average income 2001-2009
As you can see the maroon line, China is in serious trouble. And Canada looks reasonable, interestingly enough. I'll have to come back to that later. Australia is running on a slight rise in price to income but this does not include any of the continued meteoric rise in prices into 2010 shown below with the U.S. housing bubble on there for comparison.

Australia house price index chart 1990 to 2010

Now, Battellino specified "household incomes" not "average (presumably individual) income". All right then. Australian Bureau of Statistics won't be releasing the 2009-2010 report on household income until a year from now. But we do have this:

(chart s2 on this summary report)

What do we see here? In 2005-2006 and increasingly in 2007-2008 the top quartile made disproportionate gains in income. That means the "average income" used in the top economist chart is increasingly being skewed upward and the median is going to be lower. That implies that a chart extending to 2010 against median household income have much more of a rise to it than the reassuring one shown above.

But it's not a bubble that started all the way back in 2001 where the affordability deficit was reflected in data way back in 2003. . . and would probably also show up if we have updated data for 2010 . . . You can trust a banker on that.

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