Consumers see real house price falls

Consumer confidence falls in December, real house prices tipped to fall over next few years, ANZ says

15th Dec 10, 3:52pm by Alex Tarrant

Cautious households are unlikely to spend up large before Christmas, with consumer confidence dropping in December, ANZ economists say in the latest ANZ-Roy Morgan Consumer Confidence Survey.

The survey's confidence measure fell two points from November to 112.2 in December, while households continued to have "anaemic expectations towards house prices over coming years," ANZ economists said.

"House prices are expected to rise 1.5% per year on average, down from 2.3% last month. A glass half full view would centre on it being a positive number. However, with households expecting general inflation to average 3.5%, the underlying message is one of expected declines in real house prices," they said.

"With the wealth effect not driving consumption, spending needs to come from income generation. Income generation across the economy at present is reasonable. But households appear strongly focused on rebuilding precautionary savings.

"This, as caution prevails, suggests their wallets won’t be opening up wide in advance of Christmas."

Here are ANZ's full comments:

The ANZ-Roy Morgan Consumer Confidence measure eased two points to 112.2 in December. This reverses the slight lift in November and has left consumer confidence oscillating in a narrow range over the past five months albeit with a slight downward trend.

The Current Conditions index rose five points to 98.5 (previously 93.4). Leading the lift in current sentiment was a recovery in perception towards whether it was a good time to buy a major household item (from -1 to +10). October’s post GST hangover (and collapse in perception towards buying a major item) seems to be dissipating.

However, the aggregate level of current sentiment remains low and continues to suggest a huge element of caution on the part of consumers. A net 14 percent of consumers still feel worse off relative to last year, and such negativity has persisted since 2008.

Against the backdrop of improvement in current conditions, the Future Expectations component eased from 128.6 to 121.4. The largest drop (down 13 points) was measured in the question regarding the outlook for the NZ economy in the next 12 months. The five year outlook for the NZ economy weakened 6 points.

The underlying message remains one of caution in regard to spending behaviour. We can see elements of clear support for spending diffusing through the economy via labour income growth and high commodity export prices. However, such support is facing headwinds from the deleveraging backdrop and the listless housing market.

Looking at the detail, females recorded a larger decrease in confidence, dropping 3 points to 107. This is the lowest level of confidence that females have recorded since July 2009. Males reported a 1 point drop in confidence, to 118.

Confidence eased in the 25-49 age group. Confidence in the 25-34 age cohort declined 7 points to 119, and the 35-49 year age group recorded a 6 point drop in confidence, to 106.

Confidence was unchanged in Auckland, eased in Wellington and lifted in Canterbury. Auckland is the most confident region, on an index measure of 119, with Wellington and Canterbury both on 115.

Households continue to have anaemic expectations towards house prices over the coming years. House prices are expected to rise 1.5 percent per year on average, down from 2.3 percent last month. A glass half full view would centre on it being a positive number. However, with households expecting general inflation to average 3.5 percent, the underlying message is one of expected declines in real house prices.

With the wealth effect not driving consumption, spending needs to come from income generation. Income generation across the economy at present is reasonable. But households appear strongly focused on rebuilding precautionary savings.

This, as caution prevails, suggests their wallets won’t be opening up wide in advance of Christmas.

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14 Comments

by Wolly | 15th Dec 10, 4:07pm 1292382422

Deleveraging and deflation...the double D way to wealth...stuff debt...sales rule...buy the needs not the wants...grow ferment and brew your own to win...

by Nicholas Arrand | 15th Dec 10, 4:14pm 1292382872

Lets' see. "Expectation" falling at 0.8% in a month. If we're at a 'glass half full' ( it actually must be half empty if it's falling from a higher number?) of 1.5%, then in a year we will have had a fall of... 8.1%.... if trend expectations continue!

by Simon | 15th Dec 10, 4:13pm 1292382797

Cycles bottom when people reach a point of maximum pesimism. With confidence still dropping and many people still slowly learning that we are in worse global ecomonic conditions since the great depression then it's clear we still have some way to go.

Govt. has already played all it's cards. IMHO there has never been a more risky time to buy property.

by anonentity | 15th Dec 10, 5:01pm 1292385718

It seems that America is in a death spiral..Canada is rapidly catching up with them..and China acording to some latest satalite photos has cities with no one in them..Its a Mad Mad world.It wont get much beter for quite a while..Cop a load at this.http://beforeitsnews.com/story/310/384/16_Nightmarish_Economic_Trends_To_Watch_Carefully_In2011.html

The same people that predicted the sub prime fiasco..are warning of a debt tsunami building to engulf the western world, thirteen,point seven percent of all motguages in the States are delinquent.This figure is growing....Now is a time to do a Magrathea,and learn to sleep. We are not immune.

by Muppet King | 15th Dec 10, 4:32pm 1292383968

I like the cut of your cut gib

by muzza | 15th Dec 10, 6:19pm 1292390346

Actual house prices predicted to rise in 2011, if they are income earning investments, who cares if the rise doesn't equal the inflation rate?

Anonentity, don't write off China. Morgan Stanley (one of the better investment giants) says the Chinese economy is heading for a 'golden age' of consumption-driven economic growth over the next 10 years. Like many countries before it, China is moving away from being a manufacturer of cheap goods for world markets into becoming a wealthier and more developed economy. Says the Chinese economy is at an 'inflection point' similar to that of Japan in 1969 and South Korea in 1988. It identifies 8 drivers that will usher in the golden age, resulting in household income growth increase at an average rate of 8% pa. As the economy develops, an enormous structural shift is also taking place. Occupiers/users of land have not had the right to use it up to now other than as leasehold, but government now opening up the opportunity to use land as personal collateral, this has enormous implications. If Morgan Stanley is right, this is positive globally, a new huge consumer market in the world to replace the mature and slowing ones, such as USA. The China -Australia economic relationship is a big one and that has a flow on for NZ

by amalgam | 15th Dec 10, 6:31pm 1292391115

"Actual house prices predicted to rise in 2011..."

That would mean something if it came from anyone trustworthy, but instead it's probably more spin from RE industry drones and in-denial PIs.

It's been said many times before but bears repeating: The only way property prices can rise in a sustainable manner is if everyone gets a huge income increase and the CoL takes a dive, or if NZ is invaded by hordes of wealthy foreigners hellbent on buying our houses.

Neither is even remotely likely to occur.

by muzza | 15th Dec 10, 7:24pm 1292394259

Amalgam, it doesn't seem to be a RE spin, but an actual survey conducted by the ANZ which may or may not be right. However, their economist, Cameron Bagrie is top quality and if you have been to listen to him you would probably agree.

On a global scale, and certainly very significant for Aussy and NZ, are the developments in China - quite a few people are quick to point out some possible negative factors, but China may well be our ace card economically over the next decade. Don't get too downcast yet

by Nicholas Arrand | 15th Dec 10, 7:36pm 1292394996

Just keep in mind with China, that they will consume their own produce to create internal demand, and keep the wealth China-bound. Last time, ( Japan, and Germany before them) 'The West 'had the capacity to borrow to consume the developing countries cheaper produce. This time The West doesn't. We have borrowed all we can, and won't be part of the global 'recovery' this time. We have debts, huge private debt, from the last 3 or 4 'recoveries' to ffinally have to pay for. That time of 'we can pay it off tomorrow', is today.

by amalgam | 15th Dec 10, 7:42pm 1292395367

HOW can prices rise?

Even after months of diminishing values/prices, houses still cost more than most people can afford.

Incomes haven't increased very much (if at all) in real terms for the better part of a decade.

Crippling debt is rife, especially amongst those who wish to purchase houses and those who already own houses.

The money just isn't there: those who are silly enough to be enticed by the bank's latest round of poison bait will quickly die an agonising financial death.

The days of talking-up prices are over, the ridiculous hype is a thing of the past, the fever broke long ago.

Property prices in virtually every sector are falling, perfectly in-line with the fundamentals.

NOTHING is driving an upward trend, therefore there can be no upward trend. It's all downhill for the next few years.

by J.C. | 16th Dec 10, 2:39am 1292420382

Here's some good satellite photos of the ghost cities of China. Remember, this is the country and command economy leading us into a Brave New World and putting the wheels under our own property miracle.

http://www.businessinsider.com/pictures-chinese-ghost-cities-2010-12?sl…

by muzza | 16th Dec 10, 9:40am 1292445608

Yes, I was in China some months ago and I asked about this. They simply said the number of empty places on a per capita basis was no big deal, it is a country of over 1 billion, 300 million people. It is still in some ways a command economy conflicting with the capitalist dynamic, but it's a country now in major transition .

by Gavin Jones | 16th Dec 10, 9:44am 1292445875

I know the Chinese are active purchasers of real estate in New Zealand. Many are very keen on bare land (especially life style blocks in Auckland)

However what I didn't know and this was told to me by a lady that looks after rental properties for them, is that the Chinese government is prepared to lend money at zero percent interest to those wanting to purchase land holdings in foreign countries.

This of course has only been heard second hand and I have no proof that it is correct. However on watching who is purchasing what it does tend to make sense, and is a great way to get a foothold in a country.

I have said it before and I will say it again. Most NZ's are running scared and we are selling our country to foreigners one block at a time. Then we will wonder why it becomes really unaffordable!

by SK | 16th Dec 10, 9:51am 1292446303

Watched a well reno’d ex state on savage street westmere auction for $860k yesterday.

(was 620sq with a bit of a view of some trees – but surrounded by other statehouses)

Jeez louise 860k.