Understanding consumer confidence measures

There are a number of factors which are frequently discussed when it comes to forecasting conditions in the residential housing market. 

Interest rates are one such factor and have generated much discussion in Australia over the course of 2011.  As the official cash rate set by the Reserve Bank of Australia has a decidedly significant impact on the borrowing (and therefore buying) behaviour of Australians, it is watched quite closely by market commentators and prospective purchasers. 

Another less understood measure is that of the level of consumer confidence, which is also quoted quite widely when commentators are considering the housing market. 

I recently read a blog by Tim Lawless at RP Data entitled ‘What does the recent improvement in consumer confidence mean for the Australian housing market’ which I thought provided a clear explanation regarding the relationship between levels of consumer confidence and the performance of the housing market.

In the blog Tim explains the importance of a positive consumer mindset – “for a prospective buyer to make a high commitment purchase decision like buying a home they need to have a base line level of optimism about their job security, their ability to service a mortgage and the prospects for the housing market.”

According to Tim, there has been an 84 per cent correlation between consumer confidence levels and national residential property sales volumes since the start of 2008 – this gives you some idea about why commentators monitor consumer confidence so closely. 

So what do these measures mean for would-be home buyers?  Essentially, it is important to understand that measures of consumer confidence can give you some guidance as to how fellow prospective-purchasers in the market may be inclined to act. When levels of confidence are high, this correlation figure suggests that so too will market activity be up. 

When you are in a favourable financial position and have sought the appropriate professional advice (e.g. from your real estate agent or mortgage broker/lender), it can therefore be helpful to monitor such measures when you are looking to make a property purchase to get some idea about the state of the market.

For further information about the state of the market in your particular locations of interest, please don’t hesitate to stop by one of the hundreds of CENTURY 21 offices around the country to speak to an expert real estate professional. 

Posted by Charles Tarbey on 04/10/2011 at 12:52 PM | Categories:

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