House prices rise sharply in July after June RBA cash rate cut despite media bias towards gloom and spin: Christopher Joye

I want to make some final remarks on the quality of media reporting in this country. Australia’s specialised economic commentary is typically outstanding. In the wider mass media, however, there is an emerging bias towards gloom, spin, and sensationalism when it comes to covering economic topics, and housing more specifically. In an unusual move, the ordinarily very dry RBA governor, Glenn Stevens, recently drew attention to this problem in a speech, arguing: 

“[T]he nature of public discussion [in Australia] is unrelentingly gloomy, and this has intensified over the past six months. Even before the recent turn of events in Europe … we were grimly determined to see our glass as half empty. Numerous foreign visitors to the Reserve Bank have remarked on the surprising extent of this pessimism. Each time I travel abroad I am struck by the difference between the perceptions held by foreigners about Australia and what I read in the newspapers at home.” 

The vastly experienced economic commentator Ross Gittins has echoed the governor’s concerns in an SMH column today: 

“The conundrum is why so many people could be so dissatisfied when almost all the objective indicators show us travelling well: the economy growing at about its trend rate, low unemployment, low inflation, rising real wages, low government debt – even a low current account deficit. And yet the media are full of endless gloom… Increased competition has made the media more relentlessly negative - more uninterested in anything but bad news - which must eventually have some effect on the public's state of mind.” 

One example of the biases canvassed by Stevens and Gittins is found in the coverage of the first-quarter GDP results, which were the most significant economic news in the year-to-date. Within a few hours of the numbers being released, which literally doubled the estimates of economists (and showed the local economy expanding at an above-trend pace), Chris Zappone’s article in the Age/SMH had been buried as the number three news item under the stunningly spun headline (written by the sub-editor) “More rate joy fades as economy revs up” (emphasis added).

Yes, the best economic news of 2012 had been twisted into bad news for borrowers. Seriously. And by the end of the day the article had dropped to number eight on the list of The Age/SMH's top stories behind a piece about a “bored billionaire”. The SMH screen-shot is enclosed below.

Doom-spruiker-in-chief, Steve Keen, still gets quoted by respectable media despite consistently misleading the public about the housing market. In 2008 he was regularly referenced confidently calling for a 40% fall in house prices (and double-digit unemployment).

After watching prices awkwardly rise 13% in 2009 and 5% in 2010, Keen revised his prediction to a more modest 20% decline. For what it is worth, Australian home values are currently around 15% above the lows they touched in December 2008.

At the first sign that the RBA’s monetary policy tightening was squeezing steam out of the property market in mid-2010, Keen eagerly claimed that the rate of price declines would “accelerate” thereafter. They did nothing of the sort.

Following a temporary drop in prices in April and May this year, Keen reiterated his view that the price depreciation would accelerate, and then on Twitter said he would let the data do the talking.

Well, the house price figures are talking, just not according to the tone Keen anticipated.

Christopher Joye is a leading financial economist and a director of Yellow Brick Road Funds Management and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.

Update: SQM director Louis Christopher has tweeted a response to this column and suggests readers look at a 2005 Australian Financial Review article.

RP Data-Rismark’s house price index did not exist in 2005 when the AFR article was published, as it was not launched until end 2006.