NZ House Prices versus CPI and Real CPI
Thu, 26/03/2009 - 05:30
My methodology:
I have collected the official CPI numbers from the US and from NZ.
I have also derived the CPI numbers for the US using the original methodology used before the changes in 1980. I call these the Real CPI numbers (because they are not derived using any fiddling).
First, a chart of the % change each year for the US CPI, US Real CPI and the NZ official CPI:
This is most interesting because you can see how similar the official US & NZ CPI % lines are (red & yellow).
Contrast those with the Real US CPI % line in blue.
The green line shows the multiplication factor between the CPI and Real CPI for the US, to show how the difference magnifies over the years. In other words, by 2009 the Real CPI price is about 2.85x higher than the official CPI would predict.
If you study the history of the methodology used for the US CPI you can see on the chart where the divergence increased at those changes. 'Conveniently' every change resulted in a lower official CPI result.
I suggest that it is reasonable to assume that because of the similarity of the US & NZ CPI % lines, that the Real CPI for NZ should be closer to the Real CPI of the US, ie the blue line.
Plotting the NZ Median House Prices from 1992, along with the official NZ CPI and my inferred Real CPI, I get this:
I think this is stunning.
Both official CPI lines rise slowly, and are significantly lower than the house price line (in black).
What I think is stunning is that the Real CPI line almost exactly follows the house price line.
This implies that house prices have simply followed the real general increase in prices.
Notice also the divergence between house prices and the Real CPI since NZ house prices started to fall.
The loss in wealth due to 'inflation' is greater than the loss from falling prices.
Thu, 26/03/2009 - 06:11
#2
Bubbles are often symmetrical
Bubbles are often symmetrical in time, so with a 6 year move up, it's reasonable to predict 6 years down.
Extrapolating leads to.....well house prices had better stop falling or 'inflation' fall, or things will be really bad.
Fri, 26/06/2009 - 23:00
#3
NZ House Prices also follow the RBNZ M3
The New Zealand M3 Money Supply chart from March 2009:
Notice the similarity between this chart and the Real CPI chart above. Yet more evidence that my theory looks plausible.
Fri, 26/06/2009 - 23:03
#4
Real Inflation Adjusted New Zealand House Prices
Real Inflation Adjusted New Zealand House Prices:
from my main page on inflation adjusted charts:
http://www.neuralnetwriter.cylo42.com/node/200
OK, lets see if I can interpret that chart.
Starting in 1992, because of my methodology, the NZ house price = Official & Real CPI.
Until 1998 house price increased faster than the Real CPI. This suggests that was a good period for owning a house.
Then from 1998 to 2002 prices were fairly stagnant, and by 2002 had lost value relative to the Real CPI.
From 2002 to 2007.5 house prices outstripped the Real CPI, topping about $30k above the Real CPI line.
Since then house prices have fallen, and are now significantly below the Real CPI line. About $55K below.
If you simply extend the lines in their current direction, you can see that in a year or two, house prices will be significantly below the general level of prices.
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