Is the housing market set to make a comeback?

My short answer to that question would be maybe/sort of but the long answer is much more insightful.

Consumer sentiment data for June released by Westpac and the Melbourne Institute this week showed that overall confidence remained quite weak however, the time to buy a dwelling index increased by 8.2% (This sub-index of the broader Consumer Sentiment Survey does show some volatility, so we would need to see a few months of positive trend before relying on this indicator).  It appears that the lower interest rate environment is having a more positive impact on respondent’s perception of the property market and the ongoing weakness in equities markets is also probably helping.

Each quarter the consumer sentiment survey asks the question about the wisest place to save.  In June, 25% of respondents felt that real estate was the wisest place up from 18.6% of respondents in March.  Again, this data seems to suggest that lower mortgage rates are making real estate a more attractive investment prospect.

Outside of the consumer sentiment data we have seen the New South Wales Government hand down their State Budget and it offered some attractive incentives for first home buyers and purchasers of new homes.  Specifically the incentives which start on October 1 are:

  • $15,000 first home owners grant for new homes priced up to $650,000.  This reduces to $10,000 from January 2014.
  • Stamp duty exemptions for purchases up to $650,000 with the exemptions gradually phasing out between $550,000 and $650,000.
  • A $5,000 new home grant for all non-first home buyers of new properties up to $650,000 and new vacant land up to $450,000.

Other states also continue to offer incentives to purchase as detailed below:

  • Vic – stamp duty has been cut by 20% in 2011 with the cut increasing to 50% in 2014.
  • Qld – stamp duty discounts of up to $7,000 for new homes from July 1st
  • WA – no stamp duty payable on first home purchases under $500,000 and expenses of up to $2,000 are reimbursed for purchases of established homes only
  • NT – concessions on stamp duty are available on the first $540,000 of the value of the home for first home buyers

The available incentives coupled with the lower interest rate environment and the -7.4% fall in capital city housing markets are likely to attract some first home buyers back in to the market, particularly if we get additional interest rate cuts in the coming months as many economic commentators expect.  Even with an anticipated improvement in buyer numbers it is difficult to see how there will be a return to substantial growth in home values when you consider:

  • The amount of housing stock available for sale is currently 7.7% higher than at the same time last year and 35% higher than the five year average.
  • The volume of house and unit sales is both -9% lower than the same time last year and -9% lower than the five year average.
  • Consumer sentiment shows that overall respondents remain more pessimistic than optimistic.
  • Private sector housing credit has increased by just 5.3% over the 12 months to April 2012, remaining at historic low levels.
  • National accounts data shows that over the March 2012 quarter households were saving 9.3% of their income.  Until recently the household savings ratio had been steadily declining since the mid 1970’s however, it has remained above 8% since the March 2009 quarter.

So getting back to the initial question posed, I can see the housing market making a comeback in terms of an increase in transaction activity and perhaps some slight improvement in values in certain markets.  However, I don’t see how, in light of how consumers are acting, we will see a return to robust growth in home values at a time when consumers are largely taking on new debt.

Let me know what you think, is the market about to make a comeback or do you think lower interest rates and first home buyer concessions will all be in vain and we are in for more of the same conditions.

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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3 Responses to Is the housing market set to make a comeback?

  1. James Fryer June 15, 2012 at 4:24 pm #

    It appears the market is dying a slow death. There seems to be a lot of pessimism in the market with buyers not willing to commit to a purchase quickly.
    Since the first home buyers concession on stamp duty has disappeared, so have the first home buyers. They now have to find a deposit plus stamp duty. Either the exemption returns or we will be forced to do without a lot of first home buyers in the market.
    Don’t forget that first home buyers create a flow on effect: as they buy, so the vendor that sold to them will buy something to upgrade or to downsize.
    First home buyers are struggling to afford house and land packages $500,000 and over, and many of them either won’t or can’t move to the fringes as the government wants them to.
    There isn’t the infrastructure to support anyone moving out too far from the major centres.
    I understand the government needs their slice of the pie, that’s fine, but rather than slugging buyers with a $10,000 plus stamp duty cost on the current pro-rata basis, why not impose a flat $1,000 or $2,000 stamp duty fee on all real estate transaction.
    Turnover would re-appear and miraculously increase and the government would then get a staedy flow of income. Instead we are seeing people not wanting to make a move unless it is with extreme caution.

  2. Chris Stavenhagen June 18, 2012 at 8:39 am #

    Hi Cameron,

    I am involved in country NSW property development in a very small way as a second job or was that expensive hobby?. The market has flattened out with interest patchy. I have a new house in one of the best areas in town in an established environment. It is a 4bed 2bath large double garage air conditioning etc on a sloping block with great views landscaped etc. I was told that it would be “easy to sell” but isn’t everything? The fact that it’s winter may be having an effect but somewhat surprisingly so called life style blocks are still moving some with dwelling some without.

    I expect that things will start moving in spring which is when there are more people about. The house I have is probably out of the first home buyers price range ($405k asking price) so that particular stimulus is most likely inapplicable. The lower interest rates may make a difference but I feel that rural and regional employment is a greater issue as this town is in a potential mining area but things have slowed in that sector also (new mine starts).

    I think people in general are still in the wait and see mode and the federal government is not helping with its tax regimes and wierd statements in the media. Very few people I know have a spring in their step as we were told to have by some out of touch entity in Canberra. I think that when there is more certainty in the population at large regarding the future of the economy then sentiment will lift in all sectors particularly property.

    I am in the fortunate position that I can hang on to my property until the market meets my price but if I was desperate to sell I think I would be in a deal of trouble. This may explain why there is such a slow down in new dwelling starts and property development in general.

    Capital gain is not important to me as I have value added by doing quite a lot of the physical work myself using annual leave and weekends. It’s a hard slog but rewarding in the end.

  3. Aussiehouseprices June 21, 2012 at 9:17 pm #

    I suspect the pace of house prices falls will start to gather steam soon as potential home owners sit on the side lines and investors start exiting their loss-making positions. My best guess is that we’ll have another 30% of falls (average) nation-wide before any signs of a comeback.

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