Consumers get bullish on housing (or do they?)

As the Unconventional Economist has previously described, there is a strong historical correlation between the headline rate of Consumer Confidence and mortgage as well as house price gains:

So today’s falls in consumer confidence are not so good for property. But, although this morning’s confidence number retraced its November gains, in the area of savings and investment it was the opposite, with sentiment continuing to mount for property. From Bill Evans:

The rate cut has further boosted confidence around whether now is a good time to purchase a house with the index tracking sentiment on this improving by a further 1.9% to reach its highest level since September 2009. That year Australian house prices increased 14% and were a major factor behind the Reserve Bank’s November decision to begin the rate hike cycle which lasted until November 2010.

…The September survey also included additional questions on consumers’ savings preferences. There was a fall in the proportion of respondents who favour bank deposits, down 4.1% from a record 39% in September to 34.9% in December. In contrast we saw a 4.1% jump in the proportion of respondents who favour real estate to 24.0%. Apart from June this year, when a quarter of consumers favoured property, this represents the highest reading since 2005.

I do not have the data for the correlations between the property specific survey questions and house prices but there is obviously something of a divergence underway between the property dimensions of the survey and headline rate. AS Bill Evans himself concludes:

 The authorities will be pleased that housing confidence has been building although ongoing pessimism around the economy and employment will limit the impact on actual housing market activity.

Er 20121212 Bull Consumer Sentiment

Comments

  1. It’s all pretty consistent with your Genworth report here

    http://www.macrobusiness.com.au/2012/09/genworths-housing-confidence-report-rises/

    The idea of property as the only really safe investment still seems to be predominant. To rid people of this idea I’d reckon you need to smash it…but that’s just my opinion. Of course a good place to start that process would be to adopt your ideas for rules pertaining to housing taxation and lending etc.

    Anyway the Aus economy is the housing market as far as all and sundry are concerned. We can simply borrow foreign funds forever to cover the associated resultant CAD’s.
    Nothing is going to change until it is forced on us and even then every other business in the country will be shafted even further trying to ‘save’ the housing market.
    So what should a normal person do?…Buy a house!

    • In an environment with 3% interest rates the 4% to 5% gross yields on property is starting to look reasonable even when you take off the expenses of management and maintenance.

      Remember for owner occupiers this is a tax free return.

      Rents have been growing quite a bit faster than inflation with no signs of a collapse in rents about to occur.

      You could consider housing to be an inflation linked bond with a 3% real yield. Better than a traditional government bond which currently has about a 1% real yield which is exposed to any spike in inflation.

      • Re 3% rates…you are talking about alternatives to holding cash?
        Negative RAT rates mean almost anything is worth investing in! The price of everything in the world becomes infinity…that’s why it is all so screwy!

  2. “The rate cut has further boosted confidence around whether now is a good time to purchase a house”

    For the millionth time, it’s not the interest that’s the problem, its the capital mate, the capital…