- There’s a lot of negativity in Australia on the prospects for the housing market.
- Prices have now been falling for well over a year, with the current downturn now larger than that seen during the GFC. The factors driving the weakness are unlikely to reverse anytime soon.
- Despite all the negativity, confidence among Australian property investors is significantly higher when compared to those who aren’t landlords.
Australian home prices have been falling for over a year, led by Sydney and Melbourne. Few expect that will change anytime soon.
There’s also a federal election coming, with the potential for significant changes to the tax treatment of housing. Some suspect that will lead to further price falls, including for investment properties already purchased given the potential for Labor’s proposed changes to create a two-tier housing market.
There’s also a large pipeline of new units about to come into the supply mix, an outcome that could lead to further downside pressure on high density housing prices. If recent commentary from the RBA is any indication, and with some banks continuing to announce out-of-cycle mortgage rate increases, there’s also little prospect of borrowing costs falling in the near-term.
It would be easy to understand why Australian property investors would be feeling a little glum in early 2019.
But here’s the thing: they’re not.
They’re actually feeling a lot more confident than those Australians who don’t own an investment property.
Take a look at the enlightening chart below from Westpac Bank.
Using data obtained from its latest Consumer Sentiment survey for January, it shows where confidence levels for investors and non-investors stood last month.
On absolutely every metric, be it household finances, big-ticket spending or how the economy will fare, investors are more confident than non-investors, and not by a little but a lot.
“Housing investors are markedly more optimistic than non investors with an average sentiment read over December and January of 114.7 vs 101 for non-investors and 103.7 for all consumers,” Westpac says.
A reading of 100 means the number of pessimists and optimists in the survey were equal. A reading above 100 indicates that a majority of respondents were optimistic.
Over the turn of the year, investors, from a broad perspective, were feeling very confident in contrast to those who are not a landlord.
And if you think household wealth may explain the gulf between how the two groups are feeling, think again.
Even among households earning low incomes, sentiment levels for investors were significantly higher than non-investors. The gap between the two groups was actually the widest for those households in the lower and middle income groups, rather than those earning high incomes.
“Sentiment does tend to rise with income. However, re-weighting housing investor sentiment reads at the income sub-group level using ‘all consumer’ income weights shows little change,” Westpac says.
“Indeed, across every income band, housing investors have more positive sentiment reads than non investors.”
Wealth levels, rather than income that can be deducted for those who own negatively-geared investment properties, could be a factor, but does that fully explain why sentiment levels among this group are so much higher than the rest?
It’s not as if wealthy households aren’t being impacted by downturn in the housing market, nor subject to a different economy than others.
Whatever the reason, there’s little evidence from the Westpac survey to suggest the downturn in the housing market is having much of an impact on the mood of property investors.
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