Consumer sentiment has rebounded rapidly as lockdowns have ended while COVID-19 case numbers have fallen and borrowing costs have reduced. This can only bode well for Australia’s property sector in the lead up to Christmas and into the New Year.
Each week ANZ and Roy Morgan publish their weekly consumer confidence index and Westpac and the Melbourne Institute publish their index of consumer sentiment each month.
Both measures are showing a solid and rapid recovery in the consumer mindset over the past month.
Mr Kusher says strengthening consumer confidence will boost property sales in the coming months. Picture: realestate.com.au/buy
The latest data from ANZ-Roy Morgan showed weekly consumer confidence rose by 3.4% over the week to be at its highest level in more than eight months and was above the neutral level for only the second week since the pandemic began. This means that currently more consumers are confident than not.
The Westpac-Melbourne Institute data also reflected the rebounding confidence with its index results for November 2020 reaching its highest level in seven years, shaking off (at least for now) any impact of the recession and pandemic.
The monthly Westpac-MI data also included its Time to Buy a Dwelling and House Price indices, both of which saw large increases over the past month.
The Time to Buy a Dwelling index reached its highest level since November 2013 last week and increased by 11% relative to a year ago.
The House Price Expectations index rose by 12% over the month, and although it remains 7.3% lower than its March 2020 level it is now 5.5% above its long-term average.
Assuming COVID-19 cases remain low across Australia and the re-opening of businesses is relatively successful, it is looking likely that property sales will increase and prices will also rise.
The recent outbreak of COVID-19 cases in SA and subsequent lockdown may have an impact on consumer confidence, but given SA’s small population there will likely be less impact on consumer confidence compared to when Victoria – our second most populous state – went into lockdown.
To be sure, the economy is still recovering from the first recession in almost 30 years and the subsequent high unemployment rate.
Furthermore, many loans remain on deferral, albeit the number is reportedly reducing quite quickly, and we have other factors such as slowing population growth and the gradual withdrawal of fiscal support.
Nevertheless, we have also seen people limited in how they can spend their money with domestic travel limited and overseas travel not possible. Household saving levels have also hit record highs.
When restrictions on expenditure are coupled with historic low borrowing costs, it stands to reason that among the types of luxuries people may be looking for are a nicer home given it may be achievable with similar or even lower mortgage repayments.
With international travel off the table, Mr Kusher says many Australians might be thinking of upgrading their home instead. Picture: realestate.com.au/buy
A positive short-term outlook for property
Given the strong rebound in consumer confidence and confidence in the property market, we will likely see strong sales volumes between now and the end of the year.
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While early January may be a little quieter,listing volumes will likely rebound earlier than normal next year as sellers make up for lost time in 2020.
Strong sales volumes and low borrowing costs are already resulting in some price increases and it’s expected these will continue this year and into next.
Some segments are likely to fair better than others
First-home buyer volumes are currently very strong spurred on by low borrowing costs and federal and state government incentives. Those incentives have pulled forward significant demand and with the federal government incentives set to expire at the end of this year we can anticipate much lower demand next year.
Owner-occupier upgrader demand is currently strong. Low borrowing costs and restrictions on spending will continue to see strong demand int 2021.
Closed borders will likely hamper overseas buyer demand even further in the coming months. Picture: Getty
Overseas buyer demand is being greatly hampered by closed borders and it seems likely borders will remain closed until mid-2021 at the earliest. As aresult, this segment of the market will likely remain soft, which will mostly have an impact on new housing given overseas buyers and non-citizens typically purchase new housing stock.
Investors are currently playing a limited role in the market accounting for just 23.4% of the value of new lending in September 2020, its lowest share in more than 15 years. While the share of lending to investors has dropped, the value lent has increased for four consecutive months.
With borrowing costs at record lows, we may see the return of investors in 2021 as yields on residential property look increasingly popular. The types of properties investors target are likely to shift from new to established homes, potentially from units to houses and possibly from inner suburbs to middle and outer ring areas.