‘Strong negative turn’ in investor sentiment could correct market

Speaking to Mortgage Business, Digital Finance Analytics principal Martin North explained that his company’s weekly household surveys have revealed a “big shift” in the proportion of households who are considering purchasing an investment property.

“Up until three weeks ago, we were getting very consistent levels of responses to those who were considering buying an investment property over the next 12 months. It’s moved down quite dramatically,” he said. “It’s now three weeks [later] and we’re getting a consistently strong negative turn on the data.”

The weekly surveys across 500 households showed that between 10 January and 10 February, the percentage of investors intending to transact fell by almost 11 per cent. 

Mr North emphasised that in his view, it is too soon to interpret the data as a long-term sea-change in investor sentiment, however it is “a leading indicator that something may be afoot”.

Home prices over the last three to five years have been strongly supported by more investors coming into the market, according to Mr North. He explained that if investors stopped purchasing property and started to sell, such a move could have a negative impact on the overall market.

He elaborated: “My view would be that there would be more people trying to sell than buy, which would have a downward impact on house prices.

“As house prices begin to slip, we find that more start to sell, so this could be the trigger for the correction that everyone thinks will never happen.”

Mr North’s findings come after the Reserve Bank said last week that a downturn in the housing market could be triggered by a sudden change in investor sentiment.

In its latest Statement on Monetary Policy, the central bank said: “Low rental yields and slow growth in rents could refocus property investors’ attention on the possibility of oversupply in some regions.”

“Although investor activity is currently quite strong, at least in Sydney and Melbourne, history shows that sentiment can turn quickly, especially if prices start to fall.”

Mr North agreed with the Reserve Bank’s comments, adding that if the downtrend were to continue, it could highlight “a risk to the market overall”.

The trend is being driven by a range of factors, Mr North said, including concerns about future property values, falling rental returns, rising investment interest rates and most recently concerns about potential changes to tax breaks for property investors.

“[Another concern] is a question of whether they will be able to get a loan, given the tighter lending standards that are being applied, and the fact that some lenders are perhaps less willing to lend than previously,” he said.

“So, those things together are beginning to have an impact on the ability or the intention of households within the investment sector.”

[Related: Analysis: The investor lending dilemma]