Comparing Australian and US housing

Brailey provided testimony before the Senate Economics References Committee alleging wide-scale fraud from banks to brokers. While her testimony, which covers the period of 2008 to the present, was largely about low- and no-doc loans, her claims extend into the mainstream of full-doc mortgages.

Certainly, the public would know more if the ATO, ASIC and APRA bothered to look into these cases of fraud, but just like the US, regulators have been captured by the finance industry, unwilling to upset bankers and their allies in political office. Only time will reveal the extent of fraud that has taken place.

Ryder quotes Stevens about the apparent stability of the house price to income ratio for around a decade. I personally took an interest in the statistics used to construct this ratio, but my data request was refused by the RBA on the grounds of commercial confidentiality. Eventually, I managed to extract the household income part of the equation (denominator) through a Freedom of Information Act, as this had been constructed using ABS data (the numerator was constructed using data from APM).

It was easy to see why Stevens believed the ratio had not changed for ten years: the RBA measure of household income was severely inflated, to the point that the median household was 'earning' $97,000 in early 2010 (the last year that data was provided). This unrealistically high level of household income deflated the ratio.

ABS survey data estimates household income to be no higher than $74,000, a significant difference. Economists Leith van Onselen and Cameron Murray carefully backtracked through the National Accounts data to reveal the extra artefacts that the RBA had inserted into the household income figure to inflate it.

In summary, Australia does share some uncanny similarities with the US in the period before its housing market collapsed. Central bankers denied there was a bubble, the economy was apparently strong, there were never-ending reports of a dwelling shortage, bank lending is at historical levels, housing prices were also historically high, regulators were asleep at the wheel and reports of lending fraud surfaced. A weak economy and high unemployment only occurs after the housing market sinks.

Probably the only aspect of Ryder's article that is accurate is when the question is asked of why a comparison between Australia and the US is considered legitimate. Ultimately, the most accurate assessment is based upon Australia's current internal economic conditions. The second-best comparison is between Australia's current and historical trends. Comparisons with other countries comprise an interesting academic exercise that can tell a useful story, but this is not needed to assess the health of Australia's property markets.