As the graph shows, over recent years consumer sentiment has been an important element of the performance of growth (or declines) in home values and, as a result, a sustained improvement in home values is likely to be dependent on a sustained improvement in consumer sentiment.
Sales transaction data lags our value data. However, volumes have also shown little response to date to a lower mortgage rate environment. As the graph shows, consumer sentiment and sales volumes have recorded quite a strong correlation in recent years. A sustained recovery in consumer sentiment is therefore likely to result in an improvement in residential sales activity.
Overall, cuts to mortgage rates take some time to filter through to the market, but capital city home values have now been increasing over the past six weeks. Sales volumes data which does lag is yet to show signs of a recovery and the amount of stock available for sale is slowly easing. We may well see further improvement in sales activity in the spring, which is typically a busier time for the housing market.
The key ingredient to an improvement in the housing market is likely to be an ongoing and sustained improvement in consumer sentiment, particularly a willingness to spend on high commitment purchases. This is likely to take some time, given the high level of caution being shown by consumers and the ongoing global economic uncertainty.
This article first appeared on RP Data.
