OpenAgent Consumer Sentiment Report – 2017 Q2
Here at OpenAgent, we know the importance of up-to-date market insights. As Australia’s largest real estate comparison and referral platform, we speak to thousands of homeowners every month who are seeking assistance in selecting the right person to sell their largest financial asset. We’re always looking for ways to add value for our customers, and we realised that by speaking with such a broad range of homeowners all over Australia, we had the unique ability to capture the market perspectives of one of the most important groups in the real estate ecosystem - home sellers.
In November 2016, we began compiling anonymised data capturing the sentiment and market expectations of consumers who were actively looking to sell their property.
April 2017 saw the inaugural release of the OpenAgent Consumer Sentiment Report, an ongoing quarterly publication that will track the market expectations of active vendors over time. This second release of the Report in July 2017 shows some fascinating developing trends in sentiment, based on a total of over 5,000 responses across eight months.
As you’ll see below, this regular report includes home price sentiment at a National, State and Metro level, as well as granular information about why people are selling, and what they see as the key factors driving their local market.
We hope you enjoy this report, and we look forward to delivering many unique insights in the quarters to come. Sincerely yours, Zoe & Marta Co-Founders of OpenAgent
How the Consumer Sentiment Index Works
To build the Consumer Sentiment Index, we ask our vendors the following question: Where do you expect home prices to be in your area in six months’ time? Vendors then rank their answer on a 5 tier scale, ranging from Strongly Up, Slightly Up, About The Same, Slightly Down and Strongly Down.
This information is then collated to provide the basis for our proprietary index system. The index gives a measure of vendors’ expectations for home price movement on a scale of -10 to +10, with a reading of 0 being a neutral view of the market.
Values above +5 indicate strong overall optimism and values below -5 indicate strong overall pessimism. In 2017 Q2, we collected a total of 2,556 survey responses from OpenAgent customers all across Australia. All of our responses have been weighted against the relevant cohorts at the state level to remove any bias and present a realistic snapshot of sentiment for that group.
Using this methodology, we ensure that the Consumer Sentiment Index is relevant for all vendors, not just OpenAgent’s customers.
National Consumer Sentiment
At the national level, the index recorded a burst of enthusiasm at the start of 2017 Q2, with a value of +4.4 in April, up from values of +3.9 in February and +4.0 in March. This was followed by a sharp dip to +3.6 in May, the lowest national index value recorded since the establishment of the index.
The quarter ended with the national sentiment index at a reading of +3.7 in June. Although general property price expectations are clearly still positive, the last two months may indicate some easing off from the higher enthusiasm frequently seen in recent times.
Home sellers gave a variety of reasons why the prices would move. The most common reason for prices to move up was many people moving into the area (48%) followed by new developments (39%) and the local economy (8%). The most common reasons for prices to stay the same or decline was state of jobs in the area (36%) followed by many people moving in (25%) and new developments (25%).
Interestingly, in 2017 Q2 the proportion of people concerned about jobs in the area was 17% lower than in 2017 Q1, with a greater concern by the same amount for local oversupply of dwellings.
State Consumer Sentiment
The consumer sentiment index for New South Wales has continued to show a steady decline since an enthusiasm peak at +6.5 in January 2017. With values of +5.7 in April, +5.4 in May, and +4.6 in June, there is a clear downward trend in home price expectations in NSW. This large downward swing in sentiment could spell bad news for anyone hoping the price growth in NSW would continue unrestrained.
However, an index value of +4.6 at the close of 2017 Q2 still shows plenty of expectation for house price growth, so a housing market crash does not seem to be looming in NSW. A similar downward pattern has shown up in the consumer sentiment index for Victoria in 2017 Q2. After climbing to a peak of +5.8 in March, the index declined to +5.5 in April and +4.8 in May. Interestingly, the final 2017 Q2 value of +5.7 in June seems to indicate a more hopeful outlook in VIC compared to NSW.
In the summer months, NSW clearly had higher optimism in the property market than VIC, but with the arrival of winter, the roles have reversed. It will be interesting to see whether the fortunes of NSW and VIC are diverging. Consumer sentiment in QLD has been on somewhat of a roller coaster ride in 2017, with relative high values of +3.9 in March and +3.8 in April followed by a drastic drop to +2.3 in May and +2.5 in June. Although it is not the same steady downward trend seen in NSW and VIC, the drop in sentiment in QLD would still be somewhat concerning. It is still clear that QLD is lagging behind the two larger states in overall property market sentiment.
Metro vs. Regional Consumer Sentiment
Property price expectations have generally been higher in metros than in regional Australia, and 2017 Q2 continued the trend. In metros, a spike in the index value to +5.0 in April was an echo of the +5.2 reading in January. However the move upward was not sustained, instead dropping significantly to +4.1 in May, the lowest value recorded for metros since the beginning of the survey.
The quarter ended with the index bouncing up slightly to +4.3 in June. Out in regional areas, sentiment continued as always to be less positive than in metros. Contrary to trends in other places, the sentiment index for non-metro areas has held at a higher level than in summer.
Three straight months with an index reading of +2.8, from March to May, suggested that regional sellers didn’t see any changes in their markets. However the last month of 2017 Q2 brought a drop in sentiment to an index value of +2.4, which is meaningfully lower than the peak of +3.2 in February.
Sydney and Melbourne have clearly led the way on property prices through the boom, and according to sellers’ expectations, that situation is not changing anytime soon.
They maintained the highest quarterly sentiment index values out of the five metros across 2017 Q2, with a reading of +5.3 for Sydney and +5.6 for Melbourne. Brisbane and Adelaide form a second tier with 2017 Q2 index values of +4.2 and +3.4 respectively. Perth is well behind the rest, just into negative index territory at -0.1.
Digging below the surface, the trends among the cities from 2017 Q1 are very interesting. Sydney suffered a big drop of 1.3 points from the bubbly index reading of +6.6 in 2017 Q1, while both Brisbane and Melbourne fell by 0.5 points. Adelaide barely budged while Perth recorded a strong improvement in sentiment from the clear negative 2017 Q1 reading of -1.9 to a Q2 value near zero.
These trends, if continued for a sustained period, would foreshadow a significant realignment of the relative strength of the metro property markets.
Investors vs. Owner Occupier Sentiment
At a national level, owner-occupiers remain fairly optimistic about property prices, with slight spikes in enthusiasm against a stable background over the duration of the survey. In 2017 Q2, an index value of +4.7 in April gave way to a lower value of +4.0 in May, then the quarter wrapped up with a slight bump up to +4.2 in June.
The May and June index readings were similar to the February and March values before the peak in April, so it appears there is no meaningful trend upward or downward in owner-occupiers’ sentiment. On the other hand, investors have swung quite dramatically in the last six months.
From a low point index value of +2.2 in January, sentiment climbed into 2017 Q2 with a peak at +3.9 in April. The trend abruptly reversed course, with the index falling through +3.1 in May to finish 2017 Q2 at +2.7 in June. The downward trend in sentiment could be a response to increased regulatory pressure focusing on investors.