‘P’ is for Polyanna?

Gavin R. Putland wonders why RP Data's annual gross value of house and unit sales isn't scaled to GDP.

RP Data, to its credit, recently published graphs of monthly home-price indices and monthly numbers of home sales for all Australian capital cities, and for Australia as a whole, up to January 2011, in the table at the bottom right of its “Property Research” page. But those graphs have been overwritten by more recent versions which show only year-on-year changes in the respective price indices.

A graph of the national monthly number of sales up to February was published in a recent RP Data blog post. But a later post, which includes figures for March, graphs the rolling 12-month total instead of the individual monthly figures. Due to revisions, one cannot safely deduce the March figure by combining the information in the two graphs.

It is to be hoped that the publication of monthly volumes will be resumed, because trends in volumes give an early indication of trends in prices. The most recent monthly volumes are all the more interesting because, as that “later post” reports, the rolling 12-month total is the lowest since 1997.

As if to balance that bearish news, the same blog post offers a second graph showing the “rolling annual gross value of house and unit sales”, and boasts that the total for the year to December 2010 was “$207.5 billion which is only 1.5% below the five-year average”, in which case the five-year total was 1053.3 billion.

Now excuse me, but when the whole economy grows, one should expect the annual value of home sales to grow with it. Comparing the graphed figures with GDP at current prices (ABS 5206.0, Table 1, series A2302467A), we find that the five-year total value of sales was 17.52% of GDP for the corresponding five years, while the total value of sales in the year to December 2010 was 15.44% of GDP for the corresponding year. That's almost 12% below the five-year ratio.

By way of comparison, the last minimum of the rolling total value of sales, namely that for the year to February 2009, was about 14.3% of GDP for the year to December 2008, or about 14.2% of GDP for the year to March 2009. So in proportion to GDP, the rolling annual value of sales to December wasn't quite back to the GFC trough. Neither did it seem to have bottomed out.