The confidence level amongst Australian consumers (as measured by the Westpac-Melbourne Institute Consumer Sentiment Index) has been on an upwards trend since April this year, and over November the Index recorded a sharp rise to reach the highest level since April 2011. An easy way to interpret the index is when the reading is over 100, optimists are outweighing pessimists and when the index is lower than 100 pessimists are outweighing optimists. In November 2012, the Consumer Sentiment Index was showing a value of 104.3.
I have found measures of consumer confidence to be one of the most important indicators for the housing market, with the index showing an 85% correlation with the number of transactions in the housing market. To put it simply, when consumers are lacking in confidence, transaction volumes tend to be low and when confidence is high, the number of home sales follows suite.
Confidence readings aren’t the same across all of the states. In fact, Queensland, South Australia and Tasmania are continuing to record index values below the 100 mark, although each of these states has seen an improvement in the confidence reading. The most optimistic states are New South Wales, Victoria and Western Australia, where the index is now tracking higher than 100 (note the index is not available for the Territories). Interestingly, the Confidence Index has moderated in Western Australia, most likely a response to a weaker resources sector, while New South Wales and Victoria are the primary drivers of improving confidence levels.
One of the subsets of the Consumer Sentiment Index is the ‘Time to Buy a Dwelling Index’, which has shown a significant improvement nationally and across each of the States. The national index is now showing the highest reading since September 2009 and most of the state level indices are approaching their 2009 highs as well.
The indicators are further affirmation that the Australian housing market has moved out of the down phase of the cycle and there is mounting evidence that conditions will continue to improve. Average selling time has shown an improvement, so has the level of vendor discounting and auction clearance rates are holding firm above 50%. Additionally we have seen values on an improving trend since the beginning of June. Despite the October fall in the RP Data-Rismark Home Value Index, it is looking like the November reading will be another positive month for the capital city housing market, with values up 0.3% over the first 21 days of November.