[staringclown]

The final word on Australian house prices: Christopher Joye

Quote

There is an enormous amount of time wasted debating whether Australian house prices are over- or under-valued. The vast bulk of everything that is written on this subject is, unfortunately, both factually flawed and misleading.

Today I want to objectively eviscerate the long-standing myth that the Australian housing market is in the throes of an unsustainable bubble using two very simple charts, which you are unlikely to have seen before.

That jump in disposable household income during 2007 had me puzzled. I don't remember getting a particularly massive pay rise. Shares were up I suppose? Is Joye right? Is housing more affordable now than ever?

Anyway I had a look at the ABS HOUSEHOLD INCOME AND INCOME DISTRIBUTION report again. I know this stuff has probably been covered somewhere else on the forum but it's Joye. He keeps repeating this disposable household income argument so it's timely to revisit.

The figures for average household disposable income come with a few caveats. The most interesting one:

Quote

(a) Estimates presented from 2007–08 and 2009–10 are not directly comparable with
estimates for previous cycles due to the improvements made to measuring income
introduced in the 2007–08 cycle. Estimates for 2003–04 and 2005–06 have been
recompiled to reflect the new treatments of income, however not all new components
introduced in 2007–08 are available for earlier cycles

No mention of this is made by Joye. He just joins the dots. Is this the correct way to deal with this data?

Leaving this aside the report includes imputed rent figures which add $57 dollars to the average household income which is interesting. Table 18 is a cracker.

The summary puts the mean at around 15% higher than the median household disposable income. $715 (median) vs $848 (mean)

So the mean is skewed significantly toward the higher end.

The summary has some interesting figures too.

http://www.abs.gov.a...dElemFormat=gif

So I guess my point is that the figures use the most optimistic spin possible of the data and fail to mention the caveats. Not exactly the most professional analysis I've read. And that's just on the income side.

BTW In case you were in any doubt the rich are getting richer. The top 10 per cent vs the bottom 10% ratio is rising. But this too may be bullsh*t due to the caveat (a) above.

Quote

Year P90/P10 ratio
94/95 3.78
95/96 3.74
96/97 3.66
98/99 3.77
99/00 3.89
00/01 3.97
02/03 4.00
03/04 3.87
05/06 4.05
07/08 4.35
09/10 4.21

[tor]

What I love about all the hardcore spruiker types is that the bears are not actually their enemies. Those of us that have thought prices are crazy and must collapse eventually only disagree with the spruiker whores in an intellectual manner.

But lordy me there are going to be some angry investor types when it all falls apart.

My supposition is twofold:

1. Anyone thinking that it will go on for ever is probably relatively daft. Daft people tend to have extreme reactions towards people that lie to them and the lie costs them everything they own.
2. If I was a hardcore spruiker I would be learning another job but keeping my eyes on the other spruikers. No one wants to be the last spruiker (see 1.)

[staringclown]

tor, on 20 December 2011 - 12:05 PM, said:

What I love about all the hardcore spruiker types is that the bears are not actually their enemies. Those of us that have thought prices are crazy and must collapse eventually only disagree with the spruiker whores in an intellectual manner.

But lordy me there are going to be some angry investor types when it all falls apart.

My supposition is twofold:

1. Anyone thinking that it will go on for ever is probably relatively daft. Daft people tend to have extreme reactions towards people that lie to them and the lie costs them everything they own.
2. If I was a hardcore spruiker I would be learning another job but keeping my eyes on the other spruikers. No one wants to be the last spruiker (see 1.)

Absolutely. Who needs enemies? I don't hate Joye. I don't like him either. I simply trying to make decisions on a rational basis.

I started thinking housing was overpriced in 2009. In may 2009 I came across the GHPC site and found it mildly comforting that I wasn't the only chap that thought property was over priced. I don't recall ever making a crash prediction. Only a prediction that prices would fall. They are falling. Inflation is working it's magic and my deposit is growing. The constant lowering of IR is forcing me to invest ever more risky enterprises like Telstra etc. If I can manage to stay employed I'm laughing.

I will buy a PPOR eventually all you agents out there. I can't do cool stuff (like a kitchen, solar power etc ) until I get one. But I'm not buying in until it makes sense financially. I'm a saver. I don't like having a debt I can't walk away from.

[Peachy]

staringclown, on 20 December 2011 - 11:49 AM, said:

The final word on Australian house prices: Christopher Joye That jump in disposable household income during 2007 had me puzzled. I don't remember getting a particularly massive pay rise. Shares were up I suppose? Is Joye right? Is housing more affordable now than ever? Anyway I had a look at the ABS HOUSEHOLD INCOME AND INCOME DISTRIBUTION report again. I know this stuff has probably been covered somewhere else on the forum but it's Joye. He keeps repeating this disposable household income argument so it's timely to revisit. The figures for average household disposable income come with a few caveats. The most interesting one: No mention of this is made by Joye. He just joins the dots. Is this the correct way to deal with this data? Leaving this aside the report includes imputed rent figures which add $57 dollars to the average household income which is interesting. Table 18 is a cracker. The summary puts the mean at around 15% higher than the median household disposable income. $715 (median) vs $848 (mean) So the mean is skewed significantly toward the higher end. The summary has some interesting figures too. http://www.abs.gov.a...dElemFormat=gif So I guess my point is that the figures use the most optimistic spin possible of the data and fail to mention the caveats. Not exactly the most professional analysis I've read. And that's just on the income side. BTW In case you were in any doubt the rich are getting richer. The top 10 per cent vs the bottom 10% ratio is rising. But this too may be bullsh*t due to the caveat (a) above.

Hey, staringclown thanks for the post and the critique offered - I think that the cherry picking you have uncovered is some good sleuthing.

I also went to read the whole of Joye's post. Being early morning, I must admit that much of it just bamboozled me, however it struck me as very telling how much bending over backwards with indexation, adjustments and averaging it took him to support his suggestion that dwellings are affordable. I suspect that most things can be numerically 'proven' or at least 'supported' with that much wasted breath (e.g. that aged pensioners have never been better off or that the rise in the Australian dollar against the USD is 92% explained by local Tim Tam production).

Simple propositions don't take that much proving.

Edit to add: I just went into the savings/term deposits thread and noticed the chart Cobran20 posted which I believes solves the '2008 mega payrise' mystery. Around that time the RBA dropped rates from 7% to 3% - hey, presto - magical steep rise in disposable income. You can then see about a third of it taken back from 2009 when the RBA started hiking.

Edit to add again: this is what I mean

Attached File(s)

•  botchy graph.jpg (71.62K)
  Number of downloads: 9

This post has been edited by Peachy: 20 December 2011 - 08:09 PM

[zaph]

the final word - does this mean we won't be hearing from Joye again?

[booboo]

Read that on Property Observer yesterday, and though the same thing about household disposable income. I would've been shocked if that measure hadn't changed significantly over the last 25 years - like the introduction of inputed rents, etc. Joye seems to love the measure, however, maybe because it is higher than the other income survey measures from the ABS, but then he always argues than it's the change over time (his ratios) that matter. Thanks to StaringClown for actually finding a quote from the ABS which shows how spurious Joye's measurement is. And if I remember correctly, a few months ago Cameron Murray had a great post on MacroBusiness that showed that decreases in the IR doesn't actually increase the total amount you can borrow in the expected linear way as well.

My favourite bit was where Joye put his own spin on the "there's never been a better time to buy" spiel.

I'm in a similar position to StaringClown - I found GHPC in 2008(?) I think, when I got interested in the mess that was the GFC and realised how overpriced houses were and what bank lending standards were like. In 2009 I plugged my partners and my salaries into those online bank "how much can I borrow" calculators, and was shocked to see over $1M coming up. I also have no debt, and plenty of money in the bank. I'll buy eventually, whether it becomes a lifestyle choice or when I think houses have reached a fair value, only time will tell.

[zaph]

booboo, on 20 December 2011 - 11:51 PM, said:

Read that on Property Observer yesterday, and though the same thing about household disposable income. I would've been shocked if that measure hadn't changed significantly over the last 25 years - like the introduction of inputed rents, etc. Joye seems to love the measure, however, maybe because it is higher than the other income survey measures from the ABS, but then he always argues than it's the change over time (his ratios) that matter. Thanks to StaringClown for actually finding a quote from the ABS which shows how spurious Joye's measurement is. And if I remember correctly, a few months ago Cameron Murray had a great post on MacroBusiness that showed that decreases in the IR doesn't actually increase the total amount you can borrow in the expected linear way as well.

My favourite bit was where Joye put his own spin on the "there's never been a better time to buy" spiel.

I'm in a similar position to StaringClown - I found GHPC in 2008(?) I think, when I got interested in the mess that was the GFC and realised how overpriced houses were and what bank lending standards were like. In 2009 I plugged my partners and my salaries into those online bank "how much can I borrow" calculators, and was shocked to see over $1M coming up. I also have no debt, and plenty of money in the bank. I'll buy eventually, whether it becomes a lifestyle choice or when I think houses have reached a fair value, only time will tell.

Murray has posted some analysis of Joye's story on bubblepedia.

[staringclown]

Peachy, on 20 December 2011 - 07:40 PM, said:

Hey, staringclown thanks for the post and the critique offered - I think that the cherry picking you have uncovered is some good sleuthing.

I also went to read the whole of Joye's post. Being early morning, I must admit that much of it just bamboozled me, however it struck me as very telling how much bending over backwards with indexation, adjustments and averaging it took him to support his suggestion that dwellings are affordable. I suspect that most things can be numerically 'proven' or at least 'supported' with that much wasted breath (e.g. that aged pensioners have never been better off or that the rise in the Australian dollar against the USD is 92% explained by local Tim Tam production).

Simple propositions don't take that much proving.

Edit to add: I just went into the savings/term deposits thread and noticed the chart Cobran20 posted which I believes solves the '2008 mega payrise' mystery. Around that time the RBA dropped rates from 7% to 3% - hey, presto - magical steep rise in disposable income. You can then see about a third of it taken back from 2009 when the RBA started hiking.

Edit to add again: this is what I mean

You're very welcome.

On the IR changes, I was wondering if the 1/3 of households with mortgages that got the benefit of the steep cuts outweighed the 2/3 of households that have no mortgage. That 4% cut would have given those with an average mortgage an extra ~$800 per month. (~$50 per 25 basis point cut?) It would be good to understand the net effect on income of rate cuts. I'll have to check Joyes article again to understand how he has applied those indexes. Alas no time now.

[Max Carnage]

I think Peachy nailed it. A huge part of the growth in purchasing power over those 25 years is directly attributable to declining interest rates. (Another part the piemeister likes to ignore is the inclusion of non-wage income, but that's covered elsewhere.)
That can go only so far. The RBA are already locked into a future of interest rates trending towards zero, just to keep prices from... well, from doing 'worse' than they've done in 2011.

My take-home from this is something like "simple people will spend every cent they can borrow". Or maybe "house prices are determined by the most reckless lenders".

[staringclown]

From the HOUSEHOLD WEALTH AND WEALTH DISTRIBUTION

This is why the 2007-2008 and 2009-2010 figures aren't directly comparable with the earlier figures. The new figures include

• non-cash benefits (parking, company cars etc)
  
• Termination payments (redundancies)
  
• Workers comp
  
• Bonuses
  
• Irregular overtime payments

These extra sources must add a bit to the disposable household incomes. Although I imagine the bonuses and non-cash perks are also skewed toward the higher income earners. This chart shows the highest 20% got the lions share of the increases. Hard to know what the breakdown is but IR lowering is undoubtedly a large part of the increase.



The figures below represent the average outstanding principal on loans for each quintile. The totals are not vastly different for each quintile so I'm wondering what else comprises the extra boost to the wealthiest quintile. Can't be all interest rates. Or am I missing something.



Anyway I can see why the mean household disposable income is skewed compared to the median value. I'd like to see the ratio of median disposable income versus median house price. Closer to 5:1 I think.

[Smart Money]

Switzer and Commsec has posted a recent story here First fall in household income in 14 years; dwelling approvals hit lows

Of note " The latest comprehensive analysis of income and wealth levels provides another reason why people aren’t spending. The new figures show that real (inflation adjusted) weekly disposable household income actually fell slightly over the past two years, dropping from $859 a week in 2007/08 to $848 a week in 2009/10. The result marks the first time in 14 years that household disposable income has fallen "

Christopher Joye publishes his beliefs via the website Property Observer. The Property Observer business partners are Mortgage Choice Frasers Property & Lend Lease . It might be fair to assume that the business partners, who finance this business, will be seeking a good return on their investment? The business partners are a major mortgage broker service and a major real estate agency. Would a mortgage broker and a real estate agency appeciate news and information published via Property Observer that did not promote and spruik the real estate market? It is in the best interests of each business to positively promote the Australian property market. It is in the best interest of the mortgage broker and the real esate agency to positively influence and guide readers towards a property purchase and a home loan. This would result in the achievement of the overall goal "buying a property and taking out a loan".

It would be counter productive for the Editor of Property Observer to allow posts that contradict the overall goal "facilitating consumers to buy property and take out a loan".

Check out the About Us on Property Observer and no surprises here " Property Observer will showcase the best houses and apartments and all the big-name buyers and sellers. We will also keep a watchful eye on new developments, and the plush over-55 developments that seek out the growing band of empty nesters" . Influence readers and direct towards a property sale.

Christopher Joye is the Executive Director of Rismark International and has his own blogspot here http://christopherjoye.blogspot.com/ The customers for Rismark Internation and RP Data are real estate agents, lenders, mortgage brokers, property managers, property developers, valuers, insurers and other real estate related services. see http://www.rpdata.co...fessionals.html If property is sold and bought all these parties get paid. They have a commercial interest.

Chris Joye is not weird, obsessed or deluded he is commercially oriented. He is a business man and trying to keep his customers happy. Spin the spin and spruik the market with pseudo intellectual mumbo jumbo.

Fortunately there are other well researched, objective, valid points of view that paint a more accurate picture of the reality of the property market.

Oh by the way did you know that "Property Observer is a source of independent news and information for property investors and astute buyers, so they can make informed property investment decisions". Yeh right the information on Property Observer is not biased and is impartial. Yeh right Property Observer is a no spruiking zone. Come in sucker.

This post has been edited by Smart Money: 21 December 2011 - 04:00 PM