Confidence in the property market bounces back from a low base: Michael Matusik
Confidence is back, baby. But before you get too carried away, it is from a very low base.
This somewhat surprising lift in confidence is nice and all, but the key question is what people do in the future. The readings of the confidence entrails suggest more of the same – that is, being very cautious about our investment options.
Despite eight out of ten people - according to a recent RP Data poll - thinking now is a good time to buy a property, a third of the population believes the wisest place for new savings is still in the bank. Amazing, really, given that interest rates are at their lowest levels in 53 years.
Encouragingly, housing is being seen as a more attractive investment with a quarter of the Westpac/Melbourne Institute survey sample now thinking such.
Also on the positive side, the ‘good time to buy a dwelling’ index continues to rise, being currently at 143.3 (a reading over 100 means the number of optimists outweighs the number of pessimists) and according to RP Data, one in two households think that real estate prices will rise in the next 12 months, with just two out of five thinking that they will remain stable. Only 9% think they will fall.
And yet Australians remain very hesitant about buying property.
Maybe it is the ongoing global economic concerns or our sluggish labour market that is to blame. A lack of political leadership perhaps? Or maybe it is something more fundamental, like selling their existing homes in order to move. The RP Data survey shows that just over a third think it is a good time to sell.
My reading here – and the Westpac/Melbourne Institute’s ‘good time to buy a dwelling’ index is a reliable lead indicator, outlining the likely direction of the housing market in about six to nine months’ time – is that most buyers will sit on their hands until early next year and then rush in as it becomes obvious that residential property is on the improve.
"The early bird catches the worm."
Home loans
We wrote a phone book about this topic only a few weeks back, so I won’t bore you to tears again so soon, suffice to say that:
Investors are starting to get into the market – being those who like to eat their worms early – with over $8 billion in investment loans last month (April). This is the highest level in five years.
Other owner-resident buyers are also starting to get active, showing the strongest gain in four years.
First home buyers remain subdued, renting now instead of buying. They were brought forward in droves during 2009 & 2010, so seeing them ‘rest’ isn’t really all that surprising.
One in five borrowers now takes out a fixed home loan according to the ABS – the highest level in five years. The average home loan is now $301,800.
According to the AFG Mortgage Index, the current average loan-to-value ratio is 66% down from over 70% late last year.
My thoughts here are that it is usually investors who start a housing recovery. So history is repeating itself – which is somewhat comforting in a rapidly changing world.
What makes for strong residential recovery is when all three buyer segments – investors, second and subsequent owners and first timers – all improve at the same time. This is what happened in the early to mid- 2000s, for example. When only one or just two buyer segments improve, then the residential upturn is milder by comparison.
Right now, we are looking at a mild recovery, when compared to previous cycles.
Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition. Read Michael’s Blog or follow him on Facebook and Twitter or connect via LinkedIn