House prices post new record highs (but not in real terms)
Plus, Bullock on RBA reform and QT; and LAW in Sweden
Michele Bullock speaks to Australian Business Economists this week. Photo credit: Stephen Kirchner.
Australian house prices posted new record highs this week based on the daily CoreLogic hedonic dwelling value index. The 5 capital city index is up 8.3% over the year, erasing the 7.5% decline from the previous cycle peak in April 2022.
In real terms, however, the gains are less impressive. The chart below shows the monthly CoreLogic index in nominal terms (I don’t have the daily series showing the new record high) plus the same index deflated by the CPI ex-housing. In inflation-adjusted terms, we are still below previous the peak, but well up on the January 2023 lows. If you thought previous cycles were ‘bubbles’ with no basis in fundamentals, I have bad news for you.
To be clear, this is not a great outcome from a normative perspective, but it is still a fairly comprehensive repudiation of those who conditioned their macro outlook on a significant downturn in house prices. You may not particularly like the fundamentals driving higher house prices, but they are no less real for that. Only comprehensive supply-side liberalisation will moderate the secular trend to higher prices in both nominal and real terms.