Thursday, November 25, 2010

ABS House Price Index negative YOY in 2010?

In March this year (prior to the release of first quarter data) I made a bet on an internet forum I frequent. The outcome of the bet was based on whether the ABS House Price Index (weighted average) would finish positive or negative over the next 12 months (December 2009 to December 2010, with myself betting that we'd see it finish negative). $100 is to be paid by the loser to a charity of their choice, just a friendly bet, nothing too serious.

My opinion at the time I made the bet was that house prices would peak in first quarter 2010 and that this would be the "tipping point" for the correction to come (15-20% in nominal terms, higher in real terms) to play out over several years.

It must have only been a few weeks following the initial bet having been placed that the first quarter ABS data came out showing a 4.8% increase in the index over the first 3 months. It was that point that I realised I should have attempted to start the bet from the end of the first quarter data. I thought I'd already done my dough.

The second quarter data came out and my first observation was the headline 3.1% rise...prices were still going up! However at the same time it was this point that I noticed that ABS produces revised figures. The December 2009 figure had been revised slightly higher than when the initial bet was taken and the March 2010 quarter had dropped, even though prices were rising, the numbers weren't looking quite as bad as I thought.

Third quarter data hit the ABS site only a few weeks ago and it was just barely positive, the weighted index rose by only .1% for the quarter. Brilliant, things were finally turning, but fast enough to win the bet? Probably not, that said I wouldn't completely rule out the possibility.

As it stands the final revisions available are as follows:

December 2009 - 142.2 (up from 141.8)
March 2010 - 147.1 (down from 148.5)

June quarter has dropped from 152.8 to 150.1 after only the second estimate, with the final estimate still to come (which may be lower). The third quarter has a first estimate number of 150.3.

Some watching the ABS index are saying the third quarter was positive, but I think we will find this is definitely revised to a negative number come second and final revisions. If we said that the difference between first and final estimates in third quarter work out similar to the second then that would put the third quarter final revision at around 147.6.

To then drop fromn 147.6 to 142.2 we'd need to see a 3.6% drop in the final quarter...likely? Probably not. Possible? Definitely.

Even if we don't see a year on year fall December 2009 to December 2010, we will likely see it from March 2010 to March 2011.


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