By Martin North, cross-posted from the Digital Finance Analytics Blog
Yesterday, commenting on the latest ABS data, I hinted that the DFA household research, freshly minted for March 2014 contained indications that residential property investors were trending down, for the first time in more than 18 months. So today we examine some of the data from the survey.
To start, this is a plot of residential property investors, by type (using our property segmentation models). After a significant rise since 2011, we see the hint of a reversal.
If we then look in detail at the proportion of investors who are expecting to transact in the next 3 months, we see the number falling away, as a percentage of all residential property investors. By June 2014, it will be 8% lower than its peak.
So, then we examined the state trends, and its all about NSW and VIC. This chart shows where the relative proportion of households compared with Sept 2013, now not actively considering transacting. The most significant fall is in NSW, (56%), then VIC (28%).
Finally, we looked at what was driving this change in attitude. In essence, whist some might not be able to get finance, or find the right place to buy, 64% said it was because they have already bought, and 21% said it was because they now felt that capital appreciation over the next 2 years was not going to be sufficient to get they returns they wanted if they did. That said, not one of the households in our survey is expecting to sell a recently acquired investment property to lock in returns.
So what to make of all this. Well, it does look as though the residential investment party is coming to an abrupt end. The party really only impacted the main Sydney and Melbourne markets, with perhaps small after-parties in other states. But property investors are becoming sated, and so we expect to see demand slow, with a fall in investment lending to follow. It may take a few months to work through, but as investment purchasers drove the market hard over the last 12 months, momentum may change going forward. Given the unaffordable high prices for many owner occupiers, and potential first time buyers, its certainly possible we will see prices do an about turn. Banks who were relying on increasing their investment property lending may be in for a rude shock. That is unless investors get a second wind. My money is on last drinks, with the hangover to follow!
