Household confidence drives real estate optimism

February 27, 2020

ME Bank’s latest Household Financial Comfort Report showed the fiscal wellbeing of metropolitan households in Australia increased 3% to near-record highs since the last report was released two years ago – especially in eastern Australia.

More significantly, this more robust level of household optimism will translate positively to real estate markets around Australia in 2020.  

The improvement in the financial comfort of urban households reflected significant gains in all key drivers, with record-high levels of comfort approached in Sydney (up 1%), Melbourne (up 3%) and Brisbane (up 10%).

The biannual report also revealed household optimism regarding the outlook for residential property prices has continued, with owner-occupiers (47%) and investors (51%) revising up price expectations for 2020. Brisbane investors and owner-occupiers were the most optimistic about higher property prices (67% and 61%, respectively), followed by Melbourne owner-occupiers (55%) and Sydney investors (51%). Owner-occupiers in Perth (29%) remain the least optimistic in this regard.

Those households paying off a mortgage felt they were far better off than those renting or who already own their homes. When it came to investors with debt, results show they feel they’ve benefitted the most (60% ‘better off’) from the flow on to record low mortgage rates – an indication of the high level of gearing among residential property investors in Australia.

In terms of life stage, young singles and couples with no children appeared to be the biggest winners, with over half (51%) saying they were ‘better off’, followed by couples with young children (41%).

Over a third, (36%) of households indicated their ‘financial situation had improved over the past year’. The main reasons for this result include less concern about living cost pressures, fewer households reporting falls in income, more households reporting improvement in employment status and increases in cash savings.

ME’s Consulting Economist, Jeff Oughton, said the report showed that Australia’s difficult summer had impacted financial comfort in regional Australia. “The sharp fall in financial comfort in regional areas is likely a result of ongoing drought and recent bushfire catastrophes.” 

Further underlining the case for real estate market optimism in 2020, property portal Domain is forecasting price rises in Sydney, Melbourne and Brisbane. The Perth market should also achieve its fastest price growth since 2014.

Very low interest rates and the expectation that interest rates will remain low will be the key drivers of rising property prices in 2020, according to Domain.