Consumers losing confidence in the property market

The Consumer Sentiment Index released by Westpac and the Melbourne Institute this week showed that consumer’s confidence took a nosedive during May.  The Index fell by -7.0% to 108.0 points on a seasonally adjusted basis.  Although the Index remains above 100 points indicating that consumers are generally more optimistic than pessimistic it certainly shows that pessimism is growing.  

Consumer sentiment May 2010

It’s no real surprise to see confidence falling.  During the last month we have seen: interest rates increase again and they are now 150 basis higher than they were in October 2009, concerns surrounding sovereign debt in Europe, particularly within Greece but also within the rest of the PIIGS (Portugal, Italy, Ireland, Greece and Spain), a weakening local share market, a continuing slump in housing finance and the announcement of a super profits tax on the country’s largest export sector – the mining sector. 

Despite all these negative results, unemployment has remained steady, property values have continued to grow during the first quarter of 2010 and dwelling approvals increased by 15.3% during the month of March.  However, the domestic and global economic outlook is clearly not as rosy as it has been in recent months and this is impacting on the confidence of consumers. 

Looking at the actual numbers on a state by state basis, consumers are most optimistic in Western Australia (119.1 points) and Victoria (110.1 points).  Interestingly, Western Australia is the most optimistic yet it is the state along with Queensland which has the most to lose from the super profits tax on miners.  The result suggests that the impact of the announcement is yet to filter through to Western Australian sentiment.  The least optimistic consumers are found in New South Wales (104.1) and Queensland (105.3) however, both states remain more optimistic than pessimistic. 

A sub-set of the Consumer Sentiment Index is the ‘time to buy a dwelling index’, the index fell by 15.4% from 104.3 points in April 2010 to 88.2 points in May.  The result clearly indicates that many potential property buyers do not feel now is the best time to be purchasing dwellings.  Given that property values have increased by 12.5% over the year to March 2010 and standard variable interest rates have increased from 5.8% last September to their current level of 7.4%, it is clear that most consumers believe the best time to purchase property has now passed.  RP Data has been suggesting for some time that the higher interest rate environment is likely to slow the rate of property value growth despite the fact that the national housing undersupply remains.  The most recent results of the time to buy a dwelling index suggest that many consumers feel the same way.

Time to buy a dwelling index May 2010

Over the coming months it will be interesting to see in which direction consumer sentiment and the time to buy a dwelling index head.  It seems the future direction of both will be heavily guided by the local and international economic performance and local interest rates.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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