Sunday, March 6, 2011

Hey, Economist, Prices Aren't Too High, Rents Are Too Low!

I missed Friday Point and Laugh day. Sunday will have to do.

Don't believe the reports on Australian house values

But hold it one second … what exactly did The Economist measure? The ratio of home prices to rents in 20 economies.

It's a single measure - and a leaky one at that.
Yeah, that pesky measure that every housing bubble always reverts to.

You could simply say Australia tops The Economist list because our average rents are too low - rental yields have remained unchanged at about 4 per cent for many years, though they are beginning to rise.
See, I didn't make that headline up. In case you had already accused me of doing so. Understandably.

More likely our home values are justified by one of the best economies in the developed world - even if it is a two-speed model in which mining industries thrive and other sectors struggle. And that's before you factor in the exceptional tax shelter encased in the family home along with the concentration of our populations in four cities.
Do you write for a comedy programme, sir? You really should.

You rebutted your own first point, so nowhere to go with that. And your last point is the corollary to Really, we're the size of the continental U.S. with 7% of the population, but we're running out of space, honest!

What's more, the factors that could start to immediately move prices - higher or lower - are dormant. Investors as a proportion of the market have remained unchanged since the GFC while the housing shortage remains virtually static.
You wrote it, but do you even know what it means? Is there some reason you aren't just speaking plainly? I bet you dimes to dollars you skipped counting the spate of barely regulated foreign buyers as investors, but you weren't specific enough here to expose your argument to real debate.

Indeed, the floods highlight the problem with housing statistics. The statistics are riddled with localised exceptions.
You're doing it again. Restated: I have an excuse for why my logic doesn't hold up for every instance where you might actually start pointing out specific numbers.

But there are few signs that prices are now going to plunge.
You heard it here first, people. And see how easy it is to say something right out. Oh, except now you're going to be held to that. No one's going to hold you to what you said above, because they don't know what it means.

It is much more probable that they will drift for at least a year after slipping by an estimated 1 per cent in the 12 months to January. And this is not a bad outcome for most homeowners whatever this report or the next report might care to say.
Uh oh. According to RP Data's Rismark Index Capital city values were down -1.6 per cent (s.a.) while the rest-of-state markets saw a -1.2% (s.a.) tapering in values. That's just for January. (Admittedly a noisy month. Maybe February will rescue our heroic cheerleader yet. Stay tuned.)

Hattip to CanuckDownUnder at VCI

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