Australia | Dec 06 2012
By Greg Peel
Mortgage broker Mortgage Choice has today released the results of its annual Consumer Sentiment Survey. In short, Australian consumers are not feeling confident going into 2013 and budgets will again be reined in, however the RBA's easing cycle is firing up renewed interest in property, from both owner/occupiers or, more emphatically, potential investors.
One might argue that the global economic scene has been uncertain, volatile and very worrisome since things started to go awry in late 2007. However the stimulus-fuelled global stock market rally of 2009 provided some hope that the GFC would prove a devastating but rapidly resolvable blip. But as we entered 2010, Greece reared its ugly head and set off the dominoes that became the European financial crisis. By 2011, the US debt situation had grabbed the spotlight and the fiscal cliff” of 2012-13 was created. In between, a slowing China has added to the anxiety.
In 2010, 75% of respondents to the Mortgage Choice sentiment survey were fairly or very confident with regard to the Australian economy. By 2011, that number had plunged to 56%. The 2012 survey shows a further shrinkage down to 51%. Looking at it the other way, only 12.5% of respondents were “worried” about the state of the economy in 2010, 24% became worried by 2011, and 27% are worried today.
What is worrying Australian consumers most about 2012, and thus 2013 ahead?
One might feel safe in assuming the state of the global economy would be the overriding fear, but only 11% of respondents cited this factor as their greatest concern – the second highest response. Equal second on 11% each are job security and the federal government's economic management. The greatest concern heading into 2013, according to 22% of respondents, is the rising cost of utility bills.
There will be fewer garish Christmas light displays around the suburbs this year, one might presume.
Australians have already spent the post-GFC years reducing household debt, as any retailer will tell you. Savings have also risen, with term deposits a popular choice over risk assets, but once again Australian consumers (55%) find themselves dipping into savings to make up for the hole left in the household budget by the sudden, steep rise in utility costs. This has left many (38%) unsatisfied with their level of savings, driving a need (30%) to save money simply to cover day to day living expenses and also to protect (36%) against any future economic disasters.
More than half (52%) of those surveyed intend to review their financial situation in 2013, looking to reassess the household budget, reduce unnecessary spending and review the home loan.
At this stage it doesn't look like being much of an indulgent Christmas or Christmas holiday break in Australia. Consumer discretionary and tourism-related sectors beware. The consumer staple sector may also need to load up on smaller turkeys this year.
It is clear the RBA rate cut cycle which began in November last year has not provided Australians with a renewed incentive to spend at the consumer level. Utility costs and general uncertainty have seen to that. But that doesn't mean the 1.25% of rate cuts provided up to the survey (plus another 0.25% this week) hasn't encouraged Australians to think differently on the investment front. Close to a quarter of respondents (23%) claim they will be more likely to buy property in 2013 if rates keep falling, while over a third (39%) intend to buy property in the next two years. Of those prospective buyers, 25% will be moving to a next home, 30% will be buying a first home and a “staggering”, to quote Mortgage Choice, 45% will be property investors.
Some 34% believe property prices will remain stable over 2013 and 34% believe they will rise. Only 16% believe they will fall.
On those numbers, one might assume a level of self-fulfillment will ensure property prices cannot fall (on average). A tide of 68% believing property prices will at worst remain stable and 45% looking to invest suggests a demand-push upward trend.
The trend evident among FNArena's two-monthly survey respondents – a cohort one might consider to specifically be “investors” as compared to the wider cohort of the Mortgage Choice catchment – does not contradict the Mortgage Choice findings. The November survey showed a 1% increase over four months in portfolio allocations to bricks-and-mortar property to 20% and, widening the “risk asset” spectrum, a 2% increase in equity (including REIT) allocation to 45%.
With cash quietly losing its yield appeal, the flipside is a 1% reduction in cash allocation over four months to 21% (which represents a 3% reduction over two months). Cash has ever so quietly begun to “move off the sidelines”.
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