My short answer to that question would be maybe/sort of but the long answer is much more insightful.
Consumer sentiment data for June released by Westpac and the Melbourne Institute this week showed that overall confidence remained quite weak however, the time to buy a dwelling index increased by 8.2% (This sub-index of the broader Consumer Sentiment Survey does show some volatility, so we would need to see a few months of positive trend before relying on this indicator). It appears that the lower interest rate environment is having a more positive impact on respondent’s perception of the property market and the ongoing weakness in equities markets is also probably helping.
Each quarter the consumer sentiment survey asks the question about the wisest place to save. In June, 25% of respondents felt that real estate was the wisest place up from 18.6% of respondents in March. Again, this data seems to suggest that lower mortgage rates are making real estate a more attractive investment prospect.
Outside of the consumer sentiment data we have seen the New South Wales Government hand down their State Budget and it offered some attractive incentives for first home buyers and purchasers of new homes. Specifically the incentives which start on October 1 are:
- $15,000 first home owners grant for new homes priced up to $650,000. This reduces to $10,000 from January 2014.
- Stamp duty exemptions for purchases up to $650,000 with the exemptions gradually phasing out between $550,000 and $650,000.
- A $5,000 new home grant for all non-first home buyers of new properties up to $650,000 and new vacant land up to $450,000.
Other states also continue to offer incentives to purchase as detailed below:
- Vic – stamp duty has been cut by 20% in 2011 with the cut increasing to 50% in 2014.
- Qld – stamp duty discounts of up to $7,000 for new homes from July 1st
- WA – no stamp duty payable on first home purchases under $500,000 and expenses of up to $2,000 are reimbursed for purchases of established homes only
- NT – concessions on stamp duty are available on the first $540,000 of the value of the home for first home buyers
The available incentives coupled with the lower interest rate environment and the -7.4% fall in capital city housing markets are likely to attract some first home buyers back in to the market, particularly if we get additional interest rate cuts in the coming months as many economic commentators expect. Even with an anticipated improvement in buyer numbers it is difficult to see how there will be a return to substantial growth in home values when you consider:
- The amount of housing stock available for sale is currently 7.7% higher than at the same time last year and 35% higher than the five year average.
- The volume of house and unit sales is both -9% lower than the same time last year and -9% lower than the five year average.
- Consumer sentiment shows that overall respondents remain more pessimistic than optimistic.
- Private sector housing credit has increased by just 5.3% over the 12 months to April 2012, remaining at historic low levels.
- National accounts data shows that over the March 2012 quarter households were saving 9.3% of their income. Until recently the household savings ratio had been steadily declining since the mid 1970’s however, it has remained above 8% since the March 2009 quarter.
So getting back to the initial question posed, I can see the housing market making a comeback in terms of an increase in transaction activity and perhaps some slight improvement in values in certain markets. However, I don’t see how, in light of how consumers are acting, we will see a return to robust growth in home values at a time when consumers are largely taking on new debt.
Let me know what you think, is the market about to make a comeback or do you think lower interest rates and first home buyer concessions will all be in vain and we are in for more of the same conditions.