The recent interest rate cuts have been a welcome relief for borrowers but they are not a quick fix for the flat property market.
Australian consumers are being cautious. What is clearly missing from the market is consumer confidence. A drop in interest rates always helps lift consumer confidence but market sentiment is influenced by much bigger economic issues and concerns.
Consumer confidence is currently being affected by five major factors.
- Overseas events and the global economy
- Our government’s performance, their policies and lack of strong leadership
- Employment levels
- Interest rates
- Media reports.
The media play a vital and influential role in swaying consumer sentiment by the way they report market events. The daily bombardment of negative news about the state of the economy contributes enormously to the current market uncertainty and lack of confidence.
Australia’s economic fundamentals however are still sound. We may have a two speed economy but compared to the rest of the world our economy is relatively stable and strong. Unemployment is at record low levels and Australian interest rates are now low and continuing to drop.
The property market will eventually turn around, but not before buyer confidence returns. It will return when the above issues are addressed or at least appear as though they are being addressed or resolved.
Lower interest rates clearly make housing more affordable which in turn contributes to increased market confidence.
The Reserve Bank would like to restore confidence in the property market and will cut interest rates further if necessary in order to achieve this.
For all the above reasons I expect property prices to remain weak for the rest of the year.
If you are investing in property for the long term none of the above issues should really matter very much because they will eventually be resolved. They can however provide you with lots of justifiable excuses if you want to sit on the sidelines and do nothing. And you all know what happens when you do nothing; nothing!
Written by Paul Kounnas