All in all, across all categories consumers are currently balanced between those expecting a fall in price, those expecting a rise, and those who think prices will stay around the current levels.
What is most interesting from the survey:
Chart 1:
By State:
- Consumers in NSW and Vic were notably more bullish on prices with a net 6.9% and 2.1% expecting prices to rise respectively.
- Conversely the Resource rich states of Queensland and Western Australia were the most pessimistic. WA had the highest proportion of 'extreme' pessimists with 9.4% of respondents picking a decline of 10%+.
Chart 2:
By household income:- Those on low incomes ($21 to $30K p.a) were the most optimistic of house price increases, while those with an annual income of $81 000–$90 000 were the most pessimistic.
Chart 3:
By Age Group:
- Generation X and Y continue to be the most optimistic age group (those aged 18 to 34 in the survey) expecting house prices to rise.
- Those aged 45 to 54 on balance expect house prices to decline in the next 12 months.
Concluding statement from survey:
“Despite record low interest rates and rising rental yields, demand from investors has remained subdued to date. Price expectations appear to have been the crucial 'missing ingredient' with potential buyers in this segment still clearly very wary about the potential for significant price declines.”
What can be drawn from this?
This closing statement (above) from the Westpac–Melbourne Institute survey is spot on. I have been arguing about this “missing ingredient” for some time. It is the elephant in the room which many would-be home buyers have not been taking into consideration. More importantly, I would go further and say that purchasing power expectations is the missing ingredient with potential home buyers. I expect both price and purchasing power (relative to other investments) to continue to decrease for Australian houses.
Unsurprisingly the younger generations are those who continue to be most optimistic about future house prices. After all, we are the generation which has been offered free home owner grants on a platter from the Federal and State Governments. Most of us under 35 are too young to remember the last recession in the early 90s. Why would we expect the future to be worse? We have been conditioned to believe the economy will always get bigger and better.
The Baby Boomer generation, those who have a lot more of the property, have more buying power than the younger generations (due to nearing their working life as opposed to starting) and are more pessimistic about house prices. This should be of considerable concern. This demographic has a lot more financial leverage than the X & Y generations. When sellers outnumber buyers (just on demographics) there is a long-term problem for properties and business prices.
I also discussed previously on my blog in more depth on the great Australian housing bubble (see here). I stated that the resource states would be the first to really feel housing price pain. I used the example of a person earning over $100,000 per annum driving a truck at a fly-in fly-out iron ore mine in Western Australia. This person took on a large mortgage in inner Perth on the expectations that they would continue to work in the $100K job for many years to come. As expected, just like the mining bust, Perth is now out in front leading the housing crash (in both actual house price falls and future price fall expectatiosn). Over the longer term, I believe Canberra will be the last capital city to experience the worst of the falls due to it’s reliance on Government jobs, rather than business-oriented jobs, which is what the economy really needs. It is by no means immune. All house prices have a common denominator - debt.
- Scott
Posts
No comments:
Post a Comment