Optimists outnumber pessimists on house prices despite drop in sentiment: Westpac Red Book

Nearly three out of five Australians expect house prices to rise by just under 10% over the next 12 months as optimists continue to significantly outnumber pessimists on the short term outlook for the property market.

The results are part of the quarterly Westpac-Melbourne Institute Consumer House Price Expectations Index, which fell from 53.9 in April to 46.9 in July.

The latest  index records a small drop in the proportion of respondents expecting house prices to rise over the next 12 months from 62% in April to 58.6% in July.

Nearly a third of respondents (30%) expect house prices to remain stable over this time period with the proportion of people expecting house prices to fall, rising slightly from 8% in April to 12% in July.

Expectations are strongest in NSW with over two thirds of consumers expecting prices to rise.

The chart below shows how the house price expectations index correlates with and anticipates to a degree actual changes in house prices, as well as the recent softening in outlook.

The results are published in the Westpac Red Book and follows the monthly consumer sentiment survey which found overall sentiment unchanged in July with optimists just outnumbering pessimists.

However, the sub-index tracking views on “time to buy a dwelling” fell sharply by 8.4% in July, foreshadowing the drop in house price expectations.

Despite the small downward adjustment in expectations over the  July quarter, Westpac Red Book author and senior economist Matthew Hassan says the ‘up: same: down’ mix of '58:30:12' is signi?cantly more positive than the '47:32:21' reading averaged in 2012.

“Although there is a clear consensus that prices will rise, few expect double-digit price growth with just 8% expecting a 10% plus rise," says Hassan.

“Dwelling prices often surprise though.

Prices rose 3.9% in the year to June – a gain over half of consumers did not anticipate.

“Conversely prices were weaker than expected in 2011-12 with only 22% of consumers correctly picking the 2.6% decline."

The Westpac index found some notable shifts in state sentiment with house price expectations taking a big knock in WA, falling from a “very bullish” +82 in Apr to a much lower but still positive +41 in July.

In WA, a less positive view on house price outlook, may see some cooling in WA’s housing market which outperformed in 2012-13, notes Hassan.

“This looks to be more than just a mining story with expectations in Queensland tracking in the opposite direction (up 15 points).

“Price expectations are now closely clustered with little separating consumer expectations in Queensland, Victoria and WA.

“Only NSW stands out as more bullish on prices, with over two thirds of consumers in NSW expecting prices to rise,” says Hassan