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Property price optimism rising in capitals as regions feel the strain

Record low interest rates have helped boost the level of financial comfort for many Australians who reside in our capital cities, as a rebound in property prices improves sentiment.

However, the gap with those in regional areas continues to grow, according to ME Bank’s latest Household Financial Comfort Index.

Australians living in regional areas are currently experiencing an eight-year low in their level of financial comfort based on the findings of the bi-annual index, which examines a range of different metrics including income and the cost of living.

The report also suggests that Australians living in regional areas are unable to deal with a financial emergency and highlights those in regional Queensland as some of the most affected.

On the flip side, the low interest rate environment combined with low unemployment has seen a big boost to confidence in Sydney, Melbourne and Brisbane.

As house prices have risen, households have found themselves in a far stronger financial position and made many people far more ‘comfortable with debt’.

House prices boosting confidence
As house prices continue to rebound on the East Coast of Australia, both owner-occupiers and investors have begun to feel more confident with their ‘level of debt’. 

ME’s Consulting Economist, Jeff Oughton believes the outlook for residential property prices is a factor in the improved sentiment.

“Significantly lower home loan rates and relatively low and stable unemployment rates helped to significantly improve ‘comfort with debt’ – especially in major capital cities, while a partial reversal of the fall in residential property prices in eastern capital cities and expectations of further price gains have also eased gearing concerns,” Mr Oughton said.

In the survey, ME asked households if they felt they were ‘better’ or ‘worse off’ as a result of the historically low interest rates.

The majority felt they were not impacted with 27 per cent saying they were better off with 23 per cent saying they were worse off.

“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 per cent ‘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.”

Rising prices to continue
Most households who either own their own home or own an investment property are feeling more confident than they did six months ago.

Forty-seven per cent of households living in their homes expect their dwelling prices to rise during 2020, compared to the corresponding forecast price rise by 41 per cent of households for 2019/20.

Only 6 per cent expect the value of their home to fall during 2020, compared with the previous corresponding forecast for 2019/20 by 11 per cent of households. 

Only 2 per cent of households continue to forecast dwelling prices to fall by a lot. Expectations of owner occupiers also vary significantly across major capital cities, with occupiers in Brisbane and to a less extent Melbourne a lot more optimistic than Perth residents. 

Among Perth residents, about 29 per cent expect higher prices and almost 15 per cent expect further falls during 2019/20.

In Brisbane, only 2 per cent expect lower home prices and over 60 per cent expect home values to begin to rise. 

Investors are relatively more optimistic about dwelling prices than six months ago: 51 per cent of investors expect the value of their investment properties to rise during the next 12 months (up five points), while only 10 per cent anticipate a fall (including 2 per cent who anticipate a big fall).

Currently, investors in Sydney are the most optimistic about property values (with expectations for rises of 51 per cent versus falls of only 14 per cent), followed by Melbourne (45 per cent v 7 per cent).

Price Expectations in the next 12 months – Source: ME Bank

Wealth divide
Jeff Oughton said the gap between regional and metropolitan households had now reached a record 13 per cent, which is double what we’ve seen historically.

“The sharp fall in financial comfort in regional areas is likely a result of ongoing drought and recent bushfire catastrophes, which have significantly lowered already low levels of financial comfort,” Mr Oughton said.

“‘Comfort with cash savings’ fell 9 per cent and the ‘ability to deal with financial emergencies’ fell 7 per cent, while long-term retirement comfort deteriorated, with ‘anticipated standard of living in retirement’ down 7 per cent.”

Source: ME Bank

“Regional Queensland reported the largest fall in comfort, down 14 per cent to 4.95, dipping below regional New South Wales (5.09) and Victoria (5.20).”

“In contrast, the improvement in the financial comfort of metropolitan households reflected significant gains in all key drivers, with record high levels of comfort approached in Sydney (up 1 per cent to 5.94), Melbourne (up 3 per cent to 5.91) and Brisbane (up 10 per cent to 5.82).”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.