Consumer confidence has hit a six-month high as a result of the recent drop in interest rates.
The Westpac-Melbourne Institute consumer sentiment index jumped 6.3 per cent after last week’s Reserve Bank (RBA) decision. Since the RBA began to tone down its rate-hike rhetoric in September, the mood of households has lifted by 15 per cent.
Confidence in the economy’s prospects for the year ahead has also lifted nearly 19 per cent. Westpac’s Chief Economist suggests there will be another rate cut before Christmas, taking us down to 3.75 per cent. Most banks have passed on last week’s cut and with a beyond-expectation lift in housing finance activity of 2.2 per cent in September, the industry’s hopes of a lift in activity have been buoyed.
However…
Tis the season of lower prices
There’s been a large rise in property on the market and buyers remain reluctant to commit, unless they perceive a bargain (particularly at the top end). This is unlikely to be temporary; the market has undergone a structural shift. Even some of the most bullish commentators predict that gains of the past two decades are unlikely to be repeated for a long time.
Credit growth was the primary driver of phenomenal property price gains in that period. According to the RBA, there’s rarely been a time since the 1970s when housing credit wasn’t growing at well over 10 per cent per annum. This delivered an average 12 per cent a year return for 24 years – and that’s after tax and maintenance costs. On the strength of that data, the ANZ Bank review says its official – your home is the best investment you are likely to have made.
Paying back debt
Households continue to pay back debt at record rates. With housing credit growing by only 5.8 per cent in the 12 months to August, this is the lowest growth rate since 1976.
The International Monetary Fund (IMF) believes Australian house prices are overvalued by 10 to 15 per cent but this is based on overly simple price-to-income and price-to-rent metrics. Their opinion though, if correct, leaves little room for growth until wages catch up.
On the other hand, BIS Shrapnel – who arguably has the better appreciation of Australia’s market dynamics – expects house price growth of 20 per cent in Perth over the next 3 years, 19 per cent in Sydney and 16 per cent in Brisbane. Less so for Melbourne, where prices may only rise by 6 per cent (but are currently weakening).
Undersupplied and lower activity
Activity levels are mostly down, the exception being Victoria, where sales activity is booming but prices are falling. Queensland has fared better than most would think. Despite substantial drops in values, sales activity remains relatively high.
Returning to Victoria’s situation, the state government has done two things differently from other governments; it has released a substantial amount of land for new housing development but kept government charges per block of land to approximately $20,000 (try approximately $100,000 for every NSW block of land).
However, most capitals remain undersupplied, Melbourne being the exception – there’s been a 65 per cent increase in housing stock as a result of the record building levels of the past year. Sydney and Perth remain under pressure, the latter because of the mining boom.
For the majority of agents however, levels of activity are similar to those experienced during the depths of the Global Financial Crisis (GFC) and the market is characterized by modest falls in home values – 2.1 per cent over the financial year.
Lowest sales value in a decade
The value of all dwelling transactions fell by a nauseating 18.2 per cent nationally over the 2010/11 financial year – the largest annual fall in a decade.
It will come as no surprise to Queensland members that their state has suffered most, with the total value of dwelling transactions down by 27.5 per cent. South Australia, however, is the complete opposite. There, the total value of transactions increased by 1.3 per cent.
Rent reprieve over
If the pressure was off for tenants in the past three years, it’s time to pay the piper. Rents have turned sharply upward in Sydney and Perth, according to the Australian Bureau of Statistics. This vindicates our membership’s assertions (2011 Property Market Outlook) that 2011 would be the year of the investor.
With undersupply so acute, demand is now moving towards properties with better cash flow – those further from the inner city where prices are cheaper and tenants are easily found (good transport) and yields are higher. Properties where council zoning permits Granny Flats to be built are also back in vogue.
Top end trauma
Times are good for buyers at the top end. This is where prices have fallen further and faster than the wider market. However, owners with high price expectations need to take a cold shower.
Instead of traditional high exposure marketing campaigns, many properties are now listed on the quiet, their owners fearing a ‘no sale’ campaign might injure their chances of achieving the dream price.
In Melbourne’s leafy inner east, sellers lowering their prices are leading to relatively high volumes. Prestige rural areas such as New South Wales’ Southern Highlands are also offering exceptional price reductions – a 21-hectare estate listed for $8 million a year ago just sold for $6.5 million.
Turning to competitors for help
New data from a Real Estate Business straw-poll suggests more agents are turning to their competitors to get their listings sold. 46.5 per cent of agents said they ‘always allow other agents to sell their listings’ while 34.6 per cent said they ‘sometimes’ would permit conjunctions.
However, a startling 20 per cent of agents never agree to another agent introducing a buyer.
With lengthy days-on-market and low activity levels, this is surely a risky strategy that doesn’t put customers’ interests first. It does, however, assure 100 per cent of nothing if the property fails to sell.
Women list pricier homes
US website Trulia recently researched the total value of listings held by male and female agents in the United States. They found that, on average, men list more homes than women but the homes that women list have higher asking prices. The research included the listings of over 100,000 agents.
QR Codes… Que?
QR Codes, those snazzy little boxes filled with even littler squares, first appeared on a Toyota production line in 1994. Struggling to be embraced by consumers, they’ve recently enjoyed a moment of sunshine but are they as effective as you think?
The technology behind QR Codes was not invented for advertising and marketing, and it shows.
In an on-the-street survey conducted by iMedia Connection, 300 people were shown a QR Code and offered a free gift if they could say what it was for.
- 11 per cent correctly answered QR Code or Quick Response Code
- 29 per cent said ‘some barcode thingy’
- 7 per cent guessed some variant of ‘those things you stare at that get 3D when you cross your eyes. What picture is it? I can’t seem to get it…’
- 53 per cent tried everything from a secret military code to an aerial map of San Francisco
The survey was conducted in San Francisco, a tech mecca, so that’s not a very convincing outcome for something that professes to be quick. But the plot thickens…
Of those who knew it was some kind of barcode thingy, when asked how they would decipher it, only 35 per cent said ‘with their phone’. When they were asked to do so, only 45 per cent were able to – and that took an average of 47 seconds while they took out their phone and tried to find the correct application to read the code.
Not exactly quick or responsive…
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Stewart Bunn is First National Real Estate’s National Communications Manager.
