AUD 8 month low Feb 2013 Property prices and Consumer sentiment

With the AUD at at 8 month low on the back of poor building data PRD have released ther Feb 2013 Property Research report and overlayed Westpac’s Consumer Sentiment.


Source PRDnationwide Research

Monthly WrapThe initial release of data on key economic indicators during the end of 2012 and into early 2013 was quite pessimistic. However, this appears to have not deterred an improving level of confidence in real estate. Low interest rates and increased demand are fuelling activity in different segments of the property market, and 2013 looks promising. Many residential properties are now in a situation where they are yield accretive. In other words, if a buyer has borrowed 100 per cent and purchased a property, the income after expenses would be more than the interest expense. This results in a very attractive option for investors.Looking ahead, the Reserve Bank (RBA) has expressed that it wishes to see growth in at least the property markets (particularly residential) in order to soak up the labour being laid off from the mining sector. In order for that to happen, the RBA will tolerate higher capital growth rates for real estate. It is also likely the banks will assist and in most cases provide credit to the property sector. Having a rise in capital growth will also strengthen their existing lending book.Confidence is also feeding through to the stock market, despite the very recent loss recorded at the end of February, it has been a dream start to the year, with the two main indices (the All Ords and the ASX 200) having reached above 5,000 for the first time since April 2010. Since the start of the year the market has risen 6.6 per cent. This is in addition to an already strong finish to 2012. The market posted a gain of 14 per cent over the course of 2012, with the majority of gains occurring during the second half of the year. The rise in the Indexes for 2012 was the best gain since 2009, and a marked turnaround from the 10 per cent fall recorded in 2011.
In general, share market volatility has also subsided and is around the level prior to the global financial crisis. The Dow Jones index in the US has also risen by 4.3 per cent since the start of the year as optimism about the economy there gradually builds. The FTSE 100 in the UK has risen by 5.0 per cent and Japan’s Nikkei has also risen by 8.5 per cent. The improvement in share markets reflects a return to risk, with investors seeking the higher yields on offer in equities relative to safer assets such as government bonds and term deposits. Reduced share market volatility of late has also assisted in building confidence. The underlying investor mindset seems to have changed from a defensive one, to one where capital is chasing higher returns.
Consumer sentiment, as measured by the Westpac-Melbourne Institute, is at its highest level from the past couple years. Sentiment has been rising since mid-2012 and for the month of February, recorded an Index score of 108.3 points. With stable unemployment, low interest rates and rising sentiment, the outlook is for a much stronger 2013.

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