Genworth’s housing confidence report rises

Yesterday Genworth released its biannual housing buyer confidence index and results showed a solid rise in confidence over the past six months to the highest level since 2007:

And by state:

The jump in Victorian confidence is especially eye-popping. But confidence in what exactly? The factors are these:

  • The proportion of monthly income used to service debts
  • The maximum loan-to-value ratio (LVR) borrowers are comfortable in borrowing
  • Their repayment history over the last 12 months
  • Their repayment expectations for the next 12 months
  • Whether they consider now a good time to buy a home.

So, in fact, this index should probably be named the “mortgage confidence index” because that is what it largely measures. Moreover, it only measures those with a vested interest:

…the Genworth Homebuyer Confidence Index (Genworth HCI), which measures the sentiment of Australian mortgage holders and would-be mortgage holders about their own mortgage and the overall mortgage market.

That may seem like a small point but it is important insofar as the results do not necessarily reflect any shift of intentions or sentiment in the broader investment market. It is reassuring to know that rate cuts can still boost borrower sentiment but is not overly surprising given the 75 bps in cuts over the period.

The comparable survey in the Westpac Red Book has different results because it is derived from a random sample. First, for time to buy:

As you can see, there is good news here in the mining states and solid up trends everywhere, largely on decreasing unaffordability is my guess. Then there is the where is the wisest place for savings:

This too shows some good news for real estate, which despite falling heavily in September, is around 2005 levels, even if repaying debt is the runaway winner.

But note, neither of the Westpac indexes is anywhere near post-GFC highs, except Brisbane, where prices have fallen heavily.

The Westpac charts are a much better guide because they are a random sample and more likely capture the marginal buyer of housing that will be drawn in if conditions are sufficiently attractive. So far the mortgage market has benefited a little from these confidence trends as average loan sizes have grown even though aggregates have kept falling, but whether the shift in perceptions is enough yet to drive greater interest is a moot question.

Streets Ahead

David Llewellyn-Smith
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Comments

  1. Looks like the MSM infomercial articles, which we see daily now parading as “news” at SMH and news.com.au websites, are paying off.

    • I think they’re working hard at reporting their own success, but Im not convinced they have actually succeeded yet.

  2. Confidence is relative. How nice to create a lovely chart using the opinions of people who have no idea about the issues involved. As R2M says, it just shows people are buying the MSM spruik.

      • Interest rates are a part of it. I read real estate bumf all the time, and they are certainly making a big song and dance about how low the rates are, and how they’re going lower, and so isn’t it a good time to buy? (Nudge, nudge)

        • +1

          falling IR’s and spruking is probably the most likely the result, and I expect them to drop again so so watch housing go again.

      • Absolutely!
        Curious….So RE as the safest place to put your savings has declined almost continuously from Sept 2003 to about the end of 2011. Yet through that period we have the big price rises and RE mania.
        Any ideas? People treating the incurring of debt in an entirely different context top ‘savings’

        Note that while repaying debt rates more highly than it used to, and a graph of RAT rates superimposed on that would be interesting, debt repayment still doesn’t rate that highly.
        Having cash in deposits rates highly so people are wanting to keep the cash so they can spend it at reasonably short notice.
        This you’d expect if interest rates decline you might get a quick shift from saving to spending especially on RE?

        • P.S. Note…if you do get a quick shift from saving to spending it is going into Real Estate not into shares or investment in any decent wealth producing enterprise. We can hardly blame people for this attitude.

          HnH would really appreciate your comments on my observations (I’m not married to them)

      • And it was SOooooo predictable. But the more interesting question is the future. Clearly there is only so much mileage in the lower interest rate carrot – sure rates will fall more, but at some point in time they will start to rise again. Will prices be contained enough to accomodate that through wage growth so that we see a steady market, or will we see another price spike and get a continuation of a stop start market?

        • IMO…Wages aren’t going up when interest rates go up Peter…at least not as much as inflation.
          The key part of your observation is ‘at some point’ As we agree ‘long term’ negative RAT rates are unsustainable …but long term is a damned long time!

          I’ve about given up trying to make logic out of the madness. The wine bottle is looking a better and better place to be!!!

          • Well the invitation to share a bottle is always there Flawse, and with summer coming on it’s an attractive offer.

            Wages in this country are simply unaffordable. They have to fall to relate to global conditions.

            In 2009 the highest household income for any US state was $69,272 in Maryland. The lowest was Mississippi $36,646

            In working class Forest Lake it is $83,299 and my suburb is $117,985

            It is easy to see we are overindulged.

          • dumb_non_economist

            PF, but what is the cost of housing?

            Cut housing costs by half and I’ll gladly cut my income by half.

          • Those comparitives are a function of the exchange rate, not the share of GNI workers take home.

            Wages as a proportion of GNI are the lowest since the end of WWII.

            Profits are what are too high.

            Also to add, your household income is where dual incomes should be factored, not housing prices.

          • No Rusty Penny, I use raw dollars, if I had applied the exchange rate we would be slightly better off in dollars. That isn’t a perfect comparison either though, as US citizens can buy some goods at a better price than us due to the economy of scale, but it’s still indicative.

            You can check your own suburb via the Quickstats courtesy of the 2011 Census reports. Just multiply the weekly HHI by 52.14 and you should be within a few dollars.

            For the US data I used their 2009 Census report Table 706.

            DNE – simply cutting the cost of our income in half would more than cut house prices in half, because we buy homes with the money left over after we had put food on the table and paid for basics. That base expenditure won’t change much, so the afforability of housing would be cut much more severely than half.

            Funny but when people ask for lower house prices they never suggest a wage cut.

          • 😀

            You use local script numbers to make a point.. LOL

            Then Indonesians must be vastly overpaid as they collect thousands of local script per week.

            You are appearing to be amongst those that conflate money with wealth.

            Here it is explained for you very easy Peter, ABS 5204.0

            http://www.abs.gov.au/ausstats/[email protected]/Previousproducts/5204.0Main%20Features22009-10?opendocument&tabname=Summary&prodno=5204.0&issue=2009-10&num=&view=

            Out of the entire income the country creates, labour is receiving 50 year lows.

            Correspondingly profit share is at 40 year highs.

            Yes, Australian product is quite high, but its going towards excessively high profits, not excessively high labour costs.

            Capital is overindulging, not labour.

            So why do you keep calling for downsizing in wages, but not downsizing in profits?

          • Rusty – Indonesians can’t buy much with their local paper can they, and that is the point.
            But if you’re so sure of your theory, then lets double wages, I don’t mind either way.
            It wouldn’t be good for Australia, but for me personally it would be just great.

          • In 2009 the highest household income for any US state was $69,272 in Maryland. The lowest was Mississippi $36,646

            In working class Forest Lake it is $83,299 and my suburb is $117,985

            On top of the other points made, most things in the US cost half as much as they do here.

          • Rusty – Indonesians can’t buy much with their local paper can they, and that is the point.

            No, buy itself it isn’t a point.

            The inability of them to buy a lot, and the ability of Australians to do so is majorly a function of the exchange rate.

            The AUD becomes $USD0.50 and all of a sudden we are buying a lot less, all without the ‘raw dollars’ changing one bit.

            But if you’re so sure of your theory, then lets double wages, I don’t mind either way.
            It wouldn’t be good for Australia, but for me personally it would be just great.

            So double wage share to over 106% of GNI?

            Um,, you really don’t understand wage share vs profit share.. or for that matter, wealth, at all do you?

            Overall wealth is high in Australia because of the ToT and the exchange rate. With many inputs sticky to these, they are what are passing high costs onto customers, not wages.

            As I have stated to the ABS, wages being collected as a share of overall income, being collected by those that exert themselves is at multi-generation lows.

            It is inverse with capital.

            Australian customers complaining about high prices, it’s because they are paying too much return to capital, not for the labourer who brings the product to market.

          • They are nice theories Rusty, but our dollar isn’t returning to 0.50USD and in the meantime we have to compete with US workers who haven’t had a real wage rise since 1970 and even they can’t compete with Asian workers who still don’t have anything approaching a western wage equivalent.
            It’s no use standing on one theory whilst ignoring other major structural factors. At the current value of our dollar Australian workers are too highly paid, and they have too much buying power.

          • They are nice theories Rusty,

            They aren’t theories, they are observable phenomena.

            but our dollar isn’t returning to 0.50USD

            Now why do you say such rubbish? None of us have that sort of foresight, and you amongst the least knowledgable here.

            and in the meantime we have to compete with US workers who haven’t had a real wage rise since 1970

            i) This is also about them have diminshed wage share and increased profit share, they have had it worse than us.

            Their problem now isn’t their wages, it is insufficient aggregate demand.

            ii) Much of that relates to the above with the exchange rate, ours hasn’t risen, theirs has fallen. They are doing this to try and compete.

            Here’s another novel concept for you, the entire world can’t all debase our wages at the same time. Lowering wages, to attempt to increase surplus requires another party to acquire a deficit.

            Spending their previously acquired surplus, or go into debt.

            This is beyond your understanding I would presume after your previous effort.

            and even they can’t compete with Asian workers who still don’t have anything approaching a western wage equivalent.

            Now this is where you are ONCE AGAIN wrong, despite your betters telling you the contrary.

            The U.S is now once again competing in low cost land areas, including having western wages. China is starting to be crippled by high land costs.

            It’s no use standing on one theory whilst ignoring other major structural factors.

            I’m not, you’re the one ignoring the amount of profit that is being derived from the sale of our product.

            You’re the one who has child-like intellect in understanding wage share vs profit share.

            I’ll repeat it once more for you.

            Our product is expensive because out of it is extraordinary high profit share. Our product is paying for a multi-generation low wage share.

            At the current value of our dollar Australian workers are too highly paid, and they have too much buying power.

            Then lower the dollar, or lower profits.

            The former was made floating to be this sort of risk absorber.

            The latter is meant to absorb this sort of fluctuation because that is why it gets a return above the cash rate.

          • “and you amongst the least knowledgable here”

            I was happy to have a discussion, but there are only so many petty ad hominems that I’m prepared to take when I have more productive things to do.

            Bye Rusty…

          • i wouldnt worry about rusty penny PF, always looking for a fight and never wins one becuase RP doesnt understand half of what they pretend to be an expert on. the avatar says it all…

        • Doesn’t look like interest rates will rise for some time, so the more interesting question is what happens when they just stop falling? As MB bloggers have pointed out many times, they can only go so low and then what?

  3. “As MB bloggers have pointed out many times, they can only go so low and then what?”

    Sorry but this is just plain wrong.

    Interest rates could fall by 10% (ie from 10% to 9% to 8.1% etc in a mathematical series) every year for the next 100 years.

    Some countries, notably Switzerland, have even had negative interest rates for some periods.

    And higher inflation would likely result in negative real interest rates for savers and holders of debt instruments like bonds, leading to a increase of desirability of hard assets like houses/land, expecially those with a high labour/low land component eg units.

    • Explorer…yup as long as we don’t run into a problem in the external account. I’ve put your proposition, in slightly different terms, up on the blog of house prices and credit growth. (I think 🙂 )

      Whether it’s desirable is an entirely different question!

  4. In the absence of any ‘REAL’ data we’ll just make some up hey!

    ‘buyer confidence index’…. confidence that prices are falling and sellers will eventually be forced to get in touch with reality!

    Only the gullible or recently inherited are absent minded enough to buy in a falling market!

    These reports are such BS, the ability to make a graph is not a sign of credibility!

  5. if anything the housing buyer confidence index looks to be a great and very accurate contrarian indicator. everytime it rises to these levels the property market has another leg down….this time will be no different