Confidence

By Terry Ryder, 26th November 2011

One of the slides I throw up on the screen when speaking at seminars shows my perception of typical property investors.

The image of a flock of sheep is meant is lighten the mood while making a point – but nobody laughs.

People don’t like being characterized as jittery herd animals incapable of independent decisions or sensible actions.

But that is how most property consumers behave and why we have so many dormant markets around Australia. It’s also the reason why so many Australians aspire to growth their wealth but so few achieve it.

The latest home finance index confirms that property consumers collectively have everything in their favour but are disinclined to take action. They await some magical signal that it’s okay to buy something.

There’s a paucity of confidence, certainly, but the biggest problem is the inability of the average punter to think and act independently.

According to the Commonwealth Bank/Mortgage & Finance Association of Australia Home Finance Index for September, Australians are well-positioned financially but are reluctant to act.

Consumers’ savings are healthy and their mortgage stress is low.
 
A quarter of home owners are saving at least 20 per cent of their take-home earnings. In September 78 per cent of mortgagees said they were easily making repayments, up significantly from the May Index (68 per cent).

Those struggling to meet repayments have decreased from 26 per cent in May to 17 per cent in September.
 
But the survey found that the ratio of respondents planning to buy property in the next 12 months had fallen to 17 per cent, down from 22 per cent in January.
 
It should be noted that the survey, in September, pre-dated positive data about real estate from the ABS and from mortgage brokers, who report a big increase in loans inquiry from investors and first-time buyers. It also pre-dated the Melbourne Cup day interest rate cut, passed on in full by all major lenders except the NAB.

Chief executive of the Mortgage & Finance Association of Australia, Phil Naylor, says consumers have put themselves in a position to act when confidence returns.
 
"With a recent interest rate cut, high savings and low mortgage stress, prospective home buyers are in a relatively good position," he says. "Reticence about buying property seems linked to the perceived state of the economy, not to the personal financial state of consumers."
 
Commonwealth Bank's Kathy Cummings says while some home buyers are holding back they are financially healthy. "Consumers lack confidence, but high savings means they're probably waiting for the right time to buy,” she says.

This is a comment I hear a lot from property consumers – they’re waiting for the market to bottom before they buy.

I ask them a series of questions, chief among which are: which market are you talking about? And how will you know when the market you’re watching has bottomed?

Very few can answer those questions. They don’t know which information depicts the bottom, nor how to access that data, nor have any understanding that the data doesn’t become available until many months after the event.

For the best markets in Australia right now, the bottom has already long past.

Anyone thinking of investing in the many vibrant regional markets around Australia – places like Gladstone in Queensland, the Hunter Valley in NSW, Bendigo in Victoria and Whyalla in South Australia – has already missed the bottom.

That doesn’t mean there are no opportunities there to invest well - but if it’s the bottom you were waiting for, you’d better get busy.

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