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3 property market reports you cannot miss

1152637_chartAs many as 3 Australian property market reports are worthy of an evaluation. An article on the ‘FX open’ website discusses them in great detail. Let us take a look.

1st Report: Consumer House Price Expectations Index

The first report is in regards to the Westpac-Melbourne Institute Consumer House Price Expectations Index.

The net percentage of people expecting prices to rise as against those expecting prices to fall has reached 53.9% this April. This is the highest attained in the last 3 years. It goes on to show that the Australian consumers are a lot more optimistic about the property market and are convinced that prices will escalate from here.

The maximum change has been witnessed by the percentages that had gone for ‘fall’ or ‘no change’ earlier and ‘rise’ now.

7.8% respondents are expecting double digit growths; this is significantly lower though than the numbers a year ago .

2nd Report: Mortgage Activity

The second report is in regards to the RP Data Mortgage Index. It encompasses nearly 9/10th of the residential mortgage industry. The reading of 91.1 assumes a historic high and is 6.2% higher than the one in February when adjusted for seasonal factors. At one end of the spectrum, it emphasizes more purposeful mortgage activity. However, at the other end, it also brings to surface the refinancing and higher investor-borrowing. In a way, they cancel out each other

3rd Report: Connection between house prices and consumer spending

The third and perhaps the most significant report is in regards to consumer spending and house price inflation. The HILDA survey used to test it proposes three chief arguments:

  • Consumer spending and home prices rising due to the “wealth effect” and subsequent increase in a family’s lifetime capital.
  • Consumer spending rising in direct proportion to house prices due to slackening of credit constraint.
    1. individuals can avail more borrowings
    2. they can avail higher collateral
    3. they tend to save more (the buffer-stock argument)
    • Consumer spending and house prices are moving in direct proportion because of altered perception of expected income.

    The data supports the second argument suggesting that response to home price inflation is greater in younger households than the older ones. Had the traditional wealth hypothesis been more resilient, the older lot would have been more responsive because they have more assets and lesser life expectancy. The third hypothesis is in equally damp water as it does not prove the case of homeowners and renters being affected by increased expectations of income.

    You can read the full article here.

    A House is a completely different kind of asset

    In my opinion (in regards to the third report), you must also take aggregate wealth into view while dealing with consumer spending and house price inflation. Home is a very different kind of asset. It is an asset but at the same time it offers service too. In an environment of rising house prices, rents and associated cost of living rise too. Thus those ‘trading down’ make profits while those ‘trading up’ incur losses by and large. The affect on aggregate wealth and consumer spending depends on both of these factors- house price inflation and inflation in cost of living.

    The Australian property cycle analysts will do well to treat the data holistically.