It often takes a study or a new set of statistics to confirm what many of us already know.
There are two regular and reliable measures of the nation’s mood, both of which are sponsored by a major bank. The first is by ANZ-Roy Morgan and the second by Westpac-Melbourne Institute. They are both indices; they measure similar things; and more often than not, show similar trends.
We have used the Westpac-Melbourne Institute (WMI) survey.
We are increasingly anxious about jobs, the housing market, our family’s finances and our economic future. Not surprisingly, this places a damper on our overall mood.
For those who like a bit more technical detail – confidence is falling – summary, overall consumer sentiment, according to the WMI index, is currently at 96.6, which is at its lowest level since mid-2011 when it fell below 90.
A confidence index measure of 100 means that half of those surveyed are optimistic whilst the other half are pessimistic.
We now have a glass which is clearly less than half full.
This dour reading – and more importantly the steady decline in the national confidence – will have a range of significant impacts on the Australian housing market.
Things have changed
Optimism around the housing market appears to have shifted.
True, many have embraced property over the last year or two, as evidenced by the rapid rise in investment loans. The rapid rise has caused some angst and maybe a polarisation of investment choices. When asked to select the ‘wisest’ place for savings, the most recent WMI survey found that 60 per cent said either a bank (35 per cent) or real estate (25 per cent).
Furthermore, just one in every five think that now is a good time to buy a dwelling. This is down by 11 index points in recent months.
As a result, the outlook for house prices has fallen too, down a big 23 per cent over the past twelve months.
There is a very strong correlation between confidence in new housing construction, housing finance and especially dwelling price growth. In all three instances confidence leads things by around six months.
Looking ahead
In 2013 the residential property market started with a bang. Confidence was rising at the time. Now the reverse is taking place.
Whilst we expect some markets (due to their position in the overall property cycle) to trade well next year, our charts suggest that 2015 will not start with the same fire power as 2014 did.
Having said that, our national mood can be a fickle thing and it is possible that we will see confidence bounce back quickly early in the year. It would need a massive jolt north however to reverse the current trend.
If our confidence remains weak (worse still, if it weakens further), then it adds further weight to the premise that the Australian housing market is close to its peak.
It’s all about jobs
Yet, where we go from here, for mine, comes down to jobs. If the employment figures remain lacklustre this side of February 3rd (the next time the RBA meets), then an interest rate cut is on the table.
In a world of near zero interest rates (and a still overvalued Australian dollar) an interest rate cut or two might help with job growth, place more downward pressure on the Australian dollar and keep our housing market (and especially construction) moving forward.
Sadly, this is all we have in our tool bag and the result could be a housing bust sometime in 2016.
Article by Michael Matusik via Matusik
