• Sentiment among Australians towards the outlook for home prices fell to the lowest level since 2009 in October, according to the latest Westpac-MI consumer sentiment report.
• Perceptions as to whether now is a good time to buy a home has improved over the past year among those surveyed in New South Wales and Victoria.
• Macquarie Bank says this has a “very good track record of leading momentum in housing price growth,” pointing to the potential for price declines to slow in Sydney and Melbourne in the coming months.
  

The latest Westpac-MI Australian consumer sentiment report was released this week, containing a treasure trove of information in regards to the current mindset of households.

Including towards the outlook for housing, be it for prices or whether now is a good time to buy.

Like almost all other housing market indicators of late, they were pretty weak, particularly towards the outlook for prices which fell to the lowest level since the question was first asked back in 2009.

“Consumer expectations for house prices posted another sharp fall in October,” said Bill Evans, Chief Economist at Westpac.

“The House Price Expectations Index dropped 7.4% to 101.4, taking the index below its 2015 low point.”

Evans said the result primarily reflected a plunge in sentiment among Victorian respondents, along with ongoing weakness in Sydney, mirroring similar views conveyed by Australian property professionals in the latest Residential Property Survey released by the National Australia Bank.

“The state detail showed a particularly sharp 20.3% drop in Victoria, suggesting the price correction in Melbourne, which has been slower to come through than in Sydney, is starting to bite,” he said.

Those outcomes were not all that surprising given the Melbourne and Sydney median home prices have already fallen 4.4% and 4.1% respectively so far in 2018, according to CoreLogic’s Home Value Index.

Prices in Melbourne and Sydney fell 0.9% and 0.6% in nominal terms alone in September, indicating an acceleration in price declines during what is a seasonally strong period for the market.

With the downturn in these cities showing few signs of easing, it was also not surprising to see fewer respondents indicate that now is a good time to buy in the latest survey.

“The time to buy a dwelling index slipped a further 0.9% following September’s 4.8% fall, unwinding all of the 5.5% gain in August,” Evans said.

“Despite the weakening, buyer sentiment is still well above the lows seen through mid-2017.”

It all sounds downbeat, but there is something hidden in that last statement from Evans that suggests the downturn in Sydney and Melbourne prices may be about to slow.

While the national reading on whether now is a good time to buy has weakened in each of the past two months, sentiment among those surveyed in New South Wales and Victoria has, an Evans noted in regard to the national reading, improved over the past year.

And where sentiment moves, prices tend to follow.

These two charts from Macquarie Bank provide some food for thought.

It shows the net balance of survey respondents indicating whether now is a good time to buy in New South Wales and Victoria, overlaid against changes in home prices in both Sydney and Melbourne in seasonally adjusted monthly annualised terms.

There’s not a perfect relationship between the two, but as Justin Fabo, economist at Macquarie Bank notes, sentiment has a good track record in predicting price movements.

“Sydney and Melbourne households continue to say it’s a better time to buy housing. These measures have a very good track record of leading momentum in housing price growth,” he says

So given the prior lift in sentiment levels, albeit back to only less-low levels, it suggests the speed of price declines may slow in the period ahead, at least according to prior evidence.

Hinting the relationship may still hold true, you may have noticed the small blue bars at the end of the black lines — they’re the monthly annualised movements in prices based on early data received in October.

After logging the largest declines since the GFC in September, the speed of price declines in Sydney and Melbourne have slowed based on CoreLogic’s daily price index.

While only based off a limited amount of data, and only suggestive of smaller price declines, it does provide some confidence the downturn is not becoming disorderly in nature.

Of course, with tighter lending standards in place and a huge amount of new housing supply on the way, whether the improvement in sentiment signals that prices may stop falling altogether remains debatable.

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