Why property is holding up
When the country went into lockdown on March 26, there was something we knew would happen with virtually all measures of economic activity.
First, they would get worse, a lot worse. Second, once lockdown ended, they would recover and some sectors might experience well above average levels of activity.
We’ve seen the collapse, now we’re seeing the recovery. But can it last?
To help answer that question, I created a survey of my weekly publication’s readers a month ago, asking people to indicate whether they planned to spend more or less over the coming three to six months.
Five weeks back, a net 4 per cent said they planned to cut their spending. But just one week ago, a net 7 per cent of the near 4000 respondents said they would increase their spending. That sounds good.
But in truth, the average for this measure is likely to be something considerably higher than 7 per cent. The movement at least is in the right direction.
So, can retailers now feel happy? Only a select few.
A net 18 per cent of the 4000 people said they would spend more on home renovations, a net 11 per cent on gardening tools and supplies, and 6 per cent on groceries.
But a net 19 per cent said they would cut spending on travel, 18 per cent on motor vehicles, 14 per cent on eating out, 10 per cent on clothing and footwear, and 9 per cent on furniture and appliances. These are exactly the things people reduce or delay spending on when they fear for their future incomes.
The signal to many retailers is not to think the recent surge in sales or good activity over Queen’s Birthday Weekend will be sustained. Respondents were catching up on spending, looking for bargains, or helping local businesses. None of these three factors can be long-lasting.
But I didn’t just ask people about the normal ways we spend our money. I also asked about investments.
A net 12 per cent of the 4000 respondents said they planned to buy shares. A net 8 per cent said they planned to buy an investment property, and a net 2 per cent said they planned to buy a dwelling to live in.
These last two results run directly counter to the popular narrative that the housing market will see a dearth of buyers and prices will therefore fall sharply. Interest rates are at
Young people have not been scared away from the housing market.
record low levels and the Government is initiating the biggest fiscal stimulus our country has ever seen. Money printing pushes up prices for shares and property, both commercial and residential.
Is it any wonder that so far there are few – if any – stories of house prices falling? Turnover is certainly low, with fewer buyers and fewer sellers. But of the buyers still left there is something interesting in play.
My Spending Plans Survey revealed that a net 22 per cent of those under 30 would look to spend more on investment properties. This doesn’t just mean that there is probably an unusually high proportion of young people showing up at open homes these days. It also suggests young people see investing in property as a good way of building wealth, perhaps contributing to their goal of home ownership.
Young people have not been scared away from the housing market by spreading job losses and some forecasts of big price declines.
They remain engaged and that is a signal which home builders need to pick up on. Demand for entry-level owner-occupied or buyto-let property remains strong, assisted by low interest rates, awareness of listings shortages (down 19 per cent on a year earlier at the end of May) and a desire to get one’s foot on the property ladder.
Tony Alexander is an independent economist and speaker.