Coalition and the Economy
Ahead of a Coalition victory in the federal election last week, a Liberal-centric stance is starting to filter throughout the Australian economy. In doing so, consumer confidence has since skyrocketed, with the ASX 200 reaching an 11.5-year high. The share markets prosperity has translated into improved consumer confidence, with a newfound, heightened increase in demand for mortgages. In short, banks and mortgage brokers have both experienced improved conditions from consumers to borrow in light of the federal election results.
Why so confident?
Since the Liberal party’s victory, the economy has seen an uplift in consumer confidence and overall economic activity. Promises of tax reforms, expectations of rate slashes and the pledge to introduce the first home buyers’ scheme are the main drivers of the enhanced sentiment. ANZ head of Australian economics David Plank noted that “Consumers are upbeat both about their personal outlook and the economy in general”.
The First Home Loan Deposit Scheme directly impacts consumer morale with the Coalition’s intention to reduce the usual 20% deposit to 5%. The intent is to benefit the younger generation’s ability to service and afford their first property loan.
With expectations of official interest rate cuts around 1.25% looming, the 14% slide in house prices has already taken a positive turn. Economist Paul Bloxham of HSBC expects housing prices to stabilise saying “We see early signs that the housing market is starting to stabilise and expect that a range of factors, including expected cuts by the RBA and the recent prudential loosening, mean that housing prices should stop falling in the second half of 2019.”
The growing confidence and demand for mortgages reflects the more than likely rate cuts. Plank furthered his prior statement noting that, “The prospect of lower interest rates and what appears to be a major sentiment shift on the housing market are likely drivers of the positive outlook.”
Liberal’s abolishment of the “expected changes to negative gearing and capital gains tax” is having positive implications already. Credit Suisse analysts stated the reforms put forward by Labor had “already been priced into the market”, hence the turn in the market. Consumer’s attitudes towards owning their own house has become more clear-cut with negative tax reforms out of the question. Given the shift in conditions, consumer’s ability to be approved and service the debt of a home loan has become more achievable and has ultimately led to an increase in the housing market demand.
Numbers speak for themselves
The aforementioned increase in consumer confidence isn’t just hypothetical. The ANZ-Roy Morgan Consumer Confidence index showcased a 2.1% rise in the last week to 117.2, surpassing the long run average of 113.1. The sense of “euphoria” described by Gerry Harvey, Chairman of Harvey Norman, is being felt throughout the country.
Moreover, Commonwealth Bank’s Chief Executive Matt Comyn announced that home loan applications have flourished in the wake of the new Government. CBA has experienced “quite a strong bounce” in mortgage application volumes, jumping 10% compared to the weekly average. This surge has led to a peak level not experienced by CBA in over six months. In conjunction, other major banks also experienced an influx of applications with National Australia Bank confirming that last weeks results exceeded the previous week’s in the calendar year.
A survey is undertaken weekly to provide an estimate on consumer confidence. The survey involving interviews of 1000 face-to-face participants recorded a 3.8% rise in their outlook in economic conditions. Furthermore, the “time to buy a household time” survey metric bounced 4.1%, showing improved consumer sentiment.
Taking into account the favourable economic conditions, the future is looking positive for Australia’s economy. With a large emphasis being placed on high unemployment rate, Governor Philip Lowe believes Australia could “do better” than its current unemployment rate of 5.2%. Expectations are being outpaced and doubled with 28,400 new jobs created in April. With interest rates tipped to be reduced, domestic investment conditions should improve, leading to lower unemployment and an overall improved economic setting.
Most analysts believe the property market will bottom out by the year’s third quarter and climb into positive territory by the following quarter. This speculation is on the back of the growing consumer confidence and strong indications of interest rate cuts.
By Nicholas Psaltis
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