Confidence the missing ingredient

How many rate cuts will it take to boost the property market? None … it’s a confidence job. Yes, falling rates may help to boost confidence but they aren’t the only factor at play.

In days gone by, when everyone was feeling generally happier about their lot, it would have been easy to argue that a cut or two could get people out and buying again, boosting prices and giving a much-needed lift to our residential construction sector.

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But burnt by the realisation – in the wake of the global financial crisis – that access to big loans isn't an open chequebook but is instead a heavy burden to bear, it could take more than one or two rate cuts to improve confidence.

Why? Because there’s the worries still hanging around about the global economy, the pain that the two-speed economy is inflicting and the fact the banks have been slyly lifting their rates out of cycle over the past few months, undermining consumers’ confidence that they know where they stand, and that official rate cuts will deliver relief.

Given talk continues about banks' funding costs still being under pressure, despite the clawback that has been happening in recent months, borrowers are still widely expecting that any rate cuts won’t be passed on in full.

“Even if there’s a couple of rate cuts [equalling] 0.75 over the next three months or four months, I don’t think that alone is going to dramatically change the real estate market because economically there’s a lot of factors that have affected the last couple of years of a falling market,” says Sydney real estate agent and auctioneer Ivan Bresic, director of BresicWhitney Estate Agents.

“There are wider economic issues rather than just rate cuts: job losses, lesser bonuses in the finance sector [and] house price drops over the past two years.”

Bresic says he has noticed some recent stabilisation of prices in the areas he sells in – Sydney’s inner city, inner west and east. 

He says rate cuts would be a step in the right direction and “will create some mortgage relief for borrowers and if anything, it certainly could entice a few more buyers”.

CommSec chief economist Craig James isn't too sure how big an impact a rate cut could have on the property market.

“That's a difficult one because interest rates are already reasonably attractive,” he says.

“We do know that there’s plenty of bargains out there for cashed-up buyers. But the missing ingredient is basically confidence.

“The job market is still reasonably healthy, so the unemployment rate nationally is still a bit over 5 per cent, so that’s alright.”

A limited supply of new properties due to lack-lustre construction should also be providing a boost to the market, James says.

“I think it’s down to confidence and it remains to be seen how people respond to interest rate cuts.”

But just how many rate cuts it takes to restore confidence is anyone’s guess.

“I don’t think even the Reserve Bank would have an answer to that,” James says.

“It’s how long is a piece of string. Confidence is an amazing variable – once things really start to move, they can move very, very quickly.

“We do know anecdotally that investors are certainly dipping their toes into the market; the more astute investors are already grabbing opportunities."

Will today's cut of 0.5 per cent be enough?

“Perhaps that is enough, but I think it will take more than one, certainly.”

SMH

Confidence returns to residential property market

CONFIDENCE returned to the residential market over the weekend with the auction clearance rate climbing to 63 per cent from 772 auctions, according to the Real Estate Institute of Victoria.

It was the first major sales weekend for the year, and was widely seen as a ''litmus test'' for the health of the market.

Agents and buyer advocates reported their results with some relief yesterday, saying the improved rate showed greater confidence on the part of buyers and realism from vendors.

While some reported fabulous successes, other agents continued to experience slow bidding. Also several properties were in the auction column with undisclosed prices, which raises questions about controversial higher or lower than expected results.

SMH

Sydney house prices to recover from next year: ANZ

Steady as she goes for the Sydney property market.

A combination of steady population growth and weak home completions will ensure the national housing market continues to “simmer”, with Sydney market best placed to benefit from these market dynamics, according to ANZ’s latest Australian Housing Snapshot. 

The report says the Australian housing market will avoid a “boilover” (predicted by the likes of Harry Dent and Steve Keen) provided “domestic economic conditions remain stable enough to support household finances”. 

The report, compiled by the bank’s property and economics team, led by its head of property research, Paul Braddick, says that despite weaker sentiment Sydney prices are expected to start rising slowly through the second half of the 2012 due to increasing rents and deteriorating rental affordability, which will encourage first-home buyers to enter the market and attract investors due to higher rental yields. 

“Sydney house prices have been the most resilient across the capital cities, with prices edging 0.3% higher over the year to August, compared to a 3.2% decline in the capital city average. This reflects a number of factors, including a degree of ‘catch up’ following many years of house price underperformance,” the report says.

 

Source: ANZ

ANZ notes that NSW annual population growth is expanding at a relatively healthy 1.1%, which combined with a sustained period of under-building will mean the current NSW housing shortage “will worsen with just 58,000 dwellings forecast to be completed over the next two years [to June 2013], falling well short of underlying demand over the same period, which we estimate at 103,000”. 

It also notes tightening Sydney vacancy rates (1.3%) with rental growth starting to accelerate increasing by 5.9% over the year to June 2011, while advertised rents are already running at 8%. 

The recent pick-up in net arrivals in New South Wales should boost population growth and drive rental vacancies lower from mid-2012, according to the report. 

“With ongoing pressure from yield-seeking investors to increase rents and moderate house price falls making housing purchase affordability easier, housing finance to the first home buyer segment should begin to gain momentum. This will be fuelled by the added stimulus of first-home buyer stamp duty concessions that have been rolled out from 1 July 2011,” the report says.

propertyobserver.com.au