Confidence Forecasts and the Property Market

January 22nd, 2016
Consumer and business confidence in Australia continues to fall, with overall consumer sentiment decreasing for the fourth consecutive week to reach its lowest point since the appointment of Malcolm Turnbull as Prime Minister. Falling confidence is mostly due to losses on the stock market and ongoing concerns about China’s economy, with reduced confidence also having a negative effect on the real estate market. With the property market's contribution to national growth likely to ease in 2016, confidence will be further tested over the next 12 months.

The latest ANZ-Roy Morgan consumer confidence index dropped 0.8 percent to 113.2 in mid-January, following a 1.9 percent decline in the previous week. With the index sliding 7.5 percent over the past four weeks, levels are the lowest they've been since early September 2015. With lower consumer sentiment being attributed to a waning “Turnbull effect” and financial volatility likely to persist in 2016, we could see further weakness in household spending as 2016 progresses.

“ANZ-Roy Morgan Consumer Confidence fell a modest 0.8% this week, leaving levels just a tick (0.4%) above their long run average. This follows a dip in the previous week which was likely driven by news flow on global financial market volatility and concerns over China’s economic growth. While this week’s fall in confidence may be impacted by ongoing global concerns and share market weakness, subsequent readings will be crucial in assessing whether these concerns have a short-lived impact or reflect a more persistent shift in consumer confidence."

The property market is also down, with the housing market's contribution to national growth likely to ease in 2016 as a result of significant deceleration in house price growth. While dropping prices are good news for prospective buyers, a slower market is likely to challenge business confidence throughout 2016. The property market remains key to Australia's economic transition, with a muted slowdown for both prices and construction tempering the housing industry's contribution to economic growth.

According to Roy Morgan Research’s Business Confidence index, business sentiment decreased by 3.5 percent to 114.5 points in December, following a decline of 0.5 percent in November. This puts business confidence below the five-year average of 116.9 index points, with some commentators also attributing this drop-off to a waning "Turnbull effect". A downswing in the property market is usually triggered by monetary tightening, with rate hikes by the banks towards the end of 2015 shifting expectations and dampening sentiment.

According to Roy Morgan Research industry communications director Norman Morris, the decline in business confidence is mostly due to global concerns: “This type of fluctuation, combined with global economic uncertainty (particularly China), the deteriorating Australian budgetary position (highlighted in the government’s mid-year economic update), declining commodity prices and continued speculation on tax reform, all make for a very uncertain business outlook.”

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