Indicators show property recovery is on the way

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November 12 2020
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Consumer confidence is on the rise, with the property market tipped to benefit, an industry expert has revealed.

Indicators show property recovery is on the way

According to the latest Westpac – Melbourne Institute’s consumer confidence survey, consumer sentiment surged a further 11.9 per cent in October to be up 32 per cent in the space of two months, with the index hitting a 15^month high of 105.

The survey, which was conducted between 2-6 November was prior to pharmaceutical company Pfizer announcing it had a vaccine for COVID-19, which could be a boost to consumer confidence.

“It also preceded the recent encouraging developments around Pfizer’s coronavirus vaccine,” Westpac chief economist Bill Evans said.

“During the survey week, the Reserve Bank announced further interest rate cuts. While relatively modest, the cuts came with a commitment to keep rates on hold for at least three years. Subsequently, banks have further reduced the rates on fixed rate mortgages – some going below the psychologically uplifting rate of 2 per cent,” Mr Evans said.

A separate study by ME bank has also shown that property could be the big winner out of consumer confidence.

Sentiment among those in the property market has almost rebounded to pre-COVID-19 levels, with significantly greater optimism for house prices and less worries among home owners.

ME’s head of home loans, Andrew Bartolo, said the initial signs of optimism we started to see last quarter have continued to grow into the second half of spring.

“This is really promising and indicates that despite volatility in the market, Australians have a resilient mindset when it comes to property,” he said.

Clear ‘two-speed market’ emerging

Despite improving market conditions, those who are looking to get into the market might struggle, with a two-speed market emerging.

With COVID restrictions easing, 55 per cent of property owners feel confident about selling, 57 per cent are in no rush and are delaying their move until the COVID-19 situation improves.

Those residing in Victorian metro areas are the most likely to buy in the next 12 months compared with other states.

First home buyers are the most likely group to buy − up 7 percentage points since October 2019; however, 58 per cent of first home buyers say there ‘isn’t enough choice in the market’ and 58 per cent say it’s ‘harder to save for a home loan deposit during COVID-19’.

“Despite growing positivity and optimism for house prices, there’s still many buyers and sellers who will be more comfortable continuing a ‘watch and see’ approach. The cash rate cut at the start of the month may encourage some to make moves in the market – particularly first home buyers looking to take advantage of the record-low interest rates, price falls and reduced investor activity,” said Mr Bartolo.

Over two-thirds of property owners and buyers indicated in ME’s latest report that ‘record-low interest rates have made buying or investing in property more attractive to them’.

Investor sentiment bouncing back from COVID-19

In another leading indicator for the market, positive sentiment among investors increased from 34 per cent in April to 43 per cent in October, getting closer to October 2019 highs of 51 per cent.

Additionally, 54 per cent of investors surveyed said ‘more supply in the rental market together with falling rents hadn’t delayed their investment plans’.

However, when those in the property market was asked if they think landlords will need to drop rents to attract tenants, 65 per cent said ‘yes’. This increased to 78 per cent among Sydneysiders and 73 per cent among Melburnians.

“Despite the challenges of the current rental market, investor sentiment appears resilient and on the road to recovery. There are many factors at play, but with the residential property being a prudent investment vehicle and low interest rates, investors seem prepared to weather any property market fluctuations that may occur as the COVID-19 situation evolves,” Mr Bartolo concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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