Tag: Segmentation

Today we continue our analysis of the DFA household survey data to March 2015 by looking at the cross segment comparative data. We use the DFA segment definitions and have updated our models to take account of changes in population, and property purchase type. The proportion of households who are excluded from property rose again, and the investment sector continues to grow strongly. The current distribution of households by segment are shown below.

There is still significant expectation that house prices will continue to rise in the next 12 months, despite the recent gains, though Sydney centric households are most bullish. Investors have high expectations, and as we will see when we drill into this segment, capital gains are top of mind. Down traders are relatively less confident of prices continuing to rise, which explains why this segment still wants to sell now, to crystalise recent gains.

Looking at plans over the next 12 months, more investors are piling in, so we would expect to see this translate into further momentum in the investment sector. Last month more than half of loans were for investment purposes.

In terms of borrowing plans, investors, up-traders and first time buyers are the most likely to borrow. Those down traders who are thinking of grabbing an investment property are quite likely to gear, to take advantage of tax breaks.

We see that up-traders, first time buyers and want to buys are most likely to be saving to buy, although the lower returns on deposits are proving to be a real problem for many.

Finally, segments have different propensities to use a mortgage broker. Whilst refinancers, and first time buyers are most likely to use a broker, we also see a continued rise in the number of portfolio investors using a broker. However we see in the survey data a high level of dissatisfaction from this segment with the quality and range of advice from brokers as their needs are more complex, and many brokers tend to focus on simple binary transactions. We think there is an opportunity for brokers to better tailor their services to portfolio (a.k.a. more sophisticated) customers.

Next time we will look at the segment specific data drawn from the surveys.

We just updated the DFA household surveys, with data to end November, and there are some interesting transitions in play, which taken together with potential action on foreign buyers, suggests we will see property momentum easing in the next few months. This actually may be a “get out of jail card” for the RBA and provide reasons why macroprudential may not be required after all, and why interest rates may need to be cut further next year, not lifted. Today we look at our cross segment summaries. You can read about our segment definitions and survey approach here. This update will later be incorporated on the next edition of the Property Imperative Report.

We begin with the updated estimate of the number of households by DFA segment. We find that there are 6.5 million households who are property active, and 2.25 million households who are property inactive (meaning they live in rentals, with family, friends or other accommodation). Those who are inactive continues to increase, with 26% of all households in this group now.

Of those who are active, we split them out into those with owner occupied property, those with investment property, and those who invest via SMSF. This is the national picture, to end November 2014. Of those households who are property active, 68.2% are owner occupiers, 31% have investment properties, and 0.8% have property investments via SMSF.

Looking at the cross segment results, we are seeing a steady decrease in those saving in order to enter the property market. This includes the Want-to-Buys and the First Timers, the latter who are to some extent active in market exploration. Up-Traders and Down-Traders are saving a little more, but the lack of momentum in savings means households are less likely to try and enter the marker later. Three factors have influenced this trend. First, low deposit interest rates, second lower disposable incomes, and third, a view that prices are so high they will never be able to enter the market.

Looking at the need to borrow, we see a continual rise in the demand for loans from those expecting to transact. Only Down-Traders are less likely to borrow. The need to borrow more is a reflection of higher prices in many states, though as we highlighted yesterday, there appears to be a change in the wind with regards to property prices. Lending for investment property will continue, so we may see additional controls on this type of lending coming though in due course as part of the regulatory review, but overall demand is unlikely to grow significantly beyond this.

In our surveys, we see a consistent lowering of expectations, across the segments in relation to whether prices will rise in the next 12 months. Property investors are also a little more sanguine on house price growth, though still more optimistic that owner occupiers. That said, more than half across the board still are expecting a further rise, despite stretched loan to income ratios and high benchmarks.

So, turning to question of whether households will transact in the next year, we see falls in several significant segments – Portfolio Investors, and Down-Traders are most likely to transact. In sheer volume terms, it is the Down-Traders who are most likely to keep the property ship afloat as they attempt to liquidate some of the capital locked away in their property. We see a supply/demand re-balancing ahead, and as a result, a slowing in house price growth. If investors get cold feet, prices will fall from current levels.

In the next few days we will delve into our segment specific results.

We continue our series on the results from our latest household surveys. Today we look at those seeking to trade up, and trade down. These are important segments, as they are both shaping the market.

Looking at up-traders first, these are households looking to sell to buy a larger property. Over one million households fall into this category. There are a number of reasons why households might do this, more space is the single most significant, then comes consideration of the investment potential of their property. Other reasons include life-style changes or job changes. From a trend perspective, the investment aspects of property have become slightly more important.

Turning to down-traders, there are about 1.2m households looking to sell with the prospect of buying a smaller property, and/or an investment property. Increased convenience is the most significant reason to move, followed by the wish to release capital for retirement, and next, a switch to an investment property. Other reasons to trade down include illness, death of spouse, and unemployment. From a trend perspective, the demand to release capital for retirement is stronger, whilst unemployment is less significant now. Down traders are less bullish on future property price growth than other sectors. Only 30% of down traders think prices will rise in the next 12 months, whereas across the market 60%+ of households think prices will rise further in coming months.

We can look in more detail at households over 60 years. The largest group resides in New South Wales, then Victoria.

Within this group, we find a considerable number of down traders, most of whom are looking to down shift into a smaller place for owner occupation, although some prefer investment properties.

We can look at where and what they want to buy. We find that the most significant demand from down traders over 60 years is for property closer to the city, and that more than half of these households prefer a unit. About 6% would consider property in a retirement village setting.

We find that certain factors will strongly influence over 60 down-traders considering a retirement village. Here are some of the most important. Price is the most significant factor, followed by access and facilities.

Next time we will look at investors.

We continue updating our findings from our household surveys. Today we look at households who desire to enter the market. We highlighted yesterday that there are more people excluded from the market, but what of those who would like to buy? We start with a summary of households by type. This is the national picture, by segment:

Here is the data which highlights the large number of want to buys, and the relative small number of first time buyers (defined as those actively seeking). We will discuss the other segments later.

Looking at the want to buys, we see the most significant barrier is the level of house prices, in trend terms this is becoming an even more significant issue. Whilst fears of unemployment have fallen a little, concerns about future interest rate rises are up a little and costs of living continue to be a barrier for some.

Turning to first time buyers, we see high house prices stand out as a constraining factor, whilst finding a place to buy has eased, a little.

We found that there has been a swing towards units, and further from the city. We also see a rise in those who are unsure of what or where to purchase. This is a national picture, and there is considerable state variation which I won’t cover here.

We see some first time buyers continue to consider an investment property alternative, as a way to at least get on the property ladder, even if its in an area in which they do not wish to reside. They are most likely to consider an investment property around edge of the city. Even here they may well be competing with overseas investors!

Finally, today, we look at which segments are most likely to use a mortgage broker. First time buyers are a little more likely, and well over 50 per cent would consider a broker.

Next time we will look at some of the other segments.

Today we start a series on our updated household surveys, which will in due course feed into our next edition of the Property Imperative, due be released later in the year. The current edition, is still available, but there are some significant changes in household intentions since then.

We run our surveys continually, and so incorporate new data each week. The results we will discuss relate to data up to 13th June. We start by looking at the mix of households who are property active and inactive. We define property active households as those who either own, or intend to own a property to live in, or are investing in property, or both. We find that 25.88% of households are inactive. These households will rent, live with family or friends, or have other housing arrangements.

Looking at the inactive status trend, we see that more households than ever are excluded from the property market.

We also see some state variations, with the highest proportion of inactive households founds in Tasmania and South Australia, whilst households in Western Australia, then New South Wales and Victoria have a lower mix of those inactive. That said, the absolute numbers are still increasing in these states too. This is the continuation of a long term trend.

So, next we turn to the active households and begin to look at the more detailed data. We start by looking across our segments, later we will dive more deeply into specific segmental analysis. We start with saving activity trends over time. We see that first time buyers (defined as those seeking to buy for the first time) are still saving hard, but other segments are less inclined or less able to save to purchase a property. Want to buy households (defined as those who would like to buy, but who cannot), are less likely to save than in 2013.

Looking at transaction intentions over the next 12 months, we see a significant fall in those investors expecting to enter the market. First time buyers are still being squeezed out, and those seeking to refinance an existing loan are now slightly less likely to transact. Down traders are still active (these are households seeking to sell to buy a smaller property, to release capital, or other factors), though we detect a slowing here too. Therefore we predict that demand for property will decline from recent levels in coming months. This is especially the case in New South Wales and Victoria.

Looking next at borrowing intentions, we see that property investors and up traders are most likely to seeking funding. First time buyers are needing to borrow more also, though as highlighted above they are less likely to transact. Therefore we expect to see some ongoing demand for investment housing funding, but at lower levels than those we saw last year. Funding for owner occupation will likely grow more slowly.

Finally, today we look at house price growth expectations. Overall expectation are still quite bullish, but we see a general small fall in the households who believe that house prices will rise in the next 12 months. Down traders are the least bullish.

So our initial findings highlight that we expect momentum in the property market to ease in coming months, even before any interest rate rise. In fact we think that the fall in momentum may postpone potential rate rises, and may begin to turn expectations towards a rate cut, especially if the proposed budget cuts are passed, and the international political scene gets more unstable.

Next time we will start to look at segment specific factors, as each segment exists in its own micro market, and dynamics are quite different.