This is a fantastic survey developed by Westpac's Matthew Hassan. The consumer forecast of 3.6% seems quite reasonable. It is very clear that housing conditions have cooled materially from the double-digit highs of 2009. We expect continued tapering:
"The Westpac-Melbourne Institute Consumer House Price Expectations Index declined from 79.3 in April to 58.8 in July, indicating a significant cooling in the 12mth outlook for prices. Interest rate rises, waning first home buyer demand and a softening in market activity apparent in both prices and auction clearance rates appear to be tempering the previously bullish consumer view on housing.
• Despite the cooling, most consumers still expect price gains. Over 70% are predicting house prices to rise over the next year – down from a peak of 84% in April but only marginally below the 74% read in October last year and still well above the 53% reported in July 2009. Just under 18% of respondents expect prices to remain the same, with 12% predicting declines.
• Those expecting house price rises continue to outnumber those expecting falls by a wide margin. The House Price Expectations Index reports the net % of those calling gains minus those calling declines. At 58.8, the Index is down on the 79.3 read in April and the 80.8 read in January, but only 5pts below the 63.7 read in October 2009 and well above the 34.5 read in July 2009 and the –0.6 read in May 2009.
• The spread of responses in July points to an average expected price rise of 3.6% over the next 12 months, down from 5.7% in the April survey. House price growth exceeded expectations in the year to May, coming in at just over 12%yr according to private sector measures. Only 5% of consumers were expecting 10%+ price gains in the May 2009 survey (although it should be noted that only Sydney and Melbourne clearly achieved double-digit price growth, with 10% of Vic repondents correctly picking the latter).
• The July survey detail shows optimism has been tempered across every sub-group but with some notable variations. By state, price expectations weakened much more sharply and to a lower level in the resource states with a net 47% expecting price gains in Qld and 44% in WA well below the 58.8% national read. SA saw the most resilient price expectations with 80% of respondents still seeing gains in the year ahead. By age group, expectations were more positive and resilient amongst 45-49 year olds, a key demographic for investor activity.
• The tempered view on house prices follows a substantial rise in interest rates that seemed to hit harder in May when mortgage rates rose above 7¼%. The housing market cooling since then – apparent in auction clearance rates – suggests a slowdown in price growth is already underway. Consumers clearly expect this to be a 'soft' landing."
