The power of confidence
We’ve long read about the importance of confidence – and how it can make or break an economy. In the case of property, confidence is a key barometer of how the market is performing. There are even special indices relating to consumer and business sentiment and how positive or negative these sectors are feeling about the economy.
Traditionally, when consumers are lacking in confidence, transaction volumes tend to be low, and when confidence is high, the number of home sales follow suit.
For the housing market, there have been more signs in recent times that housing and mortgage markets are more upbeat and are responding to rate cuts.
“We’ve certainly experienced a solid increase in applications in 2013 so far,” says Greg Mitchell, Homeloans’ general manager sales. “This has come from a range of borrower segments in all states.”
Overall it’s good news, given that in late 2012 confidence in the economy was uneven, with concerns about the European debt crisis and local unemployment weighing on consumers’ minds.
But that appears to be turning around. In late March, the assistant governor of the Reserve Bank of Australia, Philip Lowe gave a speech, saying that the reduction in the cash rate has had the expected effect of pushing up asset prices and improving confidence in the housing market. The overall rise in the household savings rate from “zero to 10%” since the mid-2000s was a key factor in keeping the domestic economy in balance in light of the mining investment boom.
“Nationwide measures of house prices have increased by around 4% since mid last year, after having declined for around 18 months,” Mr Lowe said. “Home lending approvals and auction clearance rates have both risen. Equity prices are up over 20% since the middle of last year. And the level of consumer confidence is now well above its long-run average level.
“Despite what one often hears, households do appear to be feeling better about both their finances as well as Australia’s medium-term prospects.”
Mr Lowe’s remarks echo a speech made by assistant RBA governor Christopher Kent, who noted that low interest rates have been supporting the established housing market, and prices have been moving higher in many residential markets across Australia, although they remain below earlier peaks in most markets.
The impact on the property market is certainly borne out by the SQM Research Weekly vendor sentiment index. Vendors were positive enough to lift asking prices during the March 2013 quarter, and at a national capital city level, vendors appeared to boost asking prices by 1.3%.
Louis Christopher from SQM Research said: “Overall the market was confident for the quarter. However, I note that there was a little more caution in the month of March. Melbourne is still recording some weakness and that goes with Canberra as well, which has most likely been affected by cuts in the Federal budget. Sydney and Darwin are leading the charge. However, if it were not for the strong results in Sydney, it is most likely the national average would be recording market weakness for the quarter.”
Property information provider RP Data also notes more positive sentiment in the market, with its March housing market sentiment survey showing that only a very small proportion of survey respondents expecting dwelling values to fall over the next six to 12 months.
The survey results showed that 38 per cent of respondents expected home values to rise over the coming six months, slightly higher than the 33 per cent who thought values would rise back in October 2012. Just over half the respondents expected dwelling values to rise over the next 12 months, a sizeable jump from 42 per cent in October 2012.
There were some considerable differences in the responses from region to region and city to city. Residents of the ACT and Perth have the most optimistic expectations for their local housing markets, with about 70 per cent of respondents in these regions expecting home values to rise over the coming 12 months. Conversely, only 30 per cent of Tasmanian respondents expect values to rise over the coming year.
Respondents to the RP Data / Nine Rewards survey were also asked about where they expected rental rates to go from here over the next six and 12 months. A larger proportion of consumers are expecting rents to rise over the coming year, with 54 per cent expecting higher rents over the next six months and 62 per cent expecting higher rents over the next year.