Sentiment survey - Q2 2009 report

With the Australian economy managing to narrowly avoid a recession last quarter, there are signs an economic recovery may be nearer than thought. However respondents’ sentiment that loan volumes, and business in general, will increase remains subdued.

Only 40.1 per cent of respondents expect volumes to increase over the coming quarter, down by 19.2 per cent from the Q1 2009 Sentiment Survey.

This drop in sentiment reflects the substantial increase in the number of respondents who expect volumes to decrease, which this quarter sits at 38.9 per cent – down by 25.9 per cent on Q1 figures.

Reflecting sentiment over declining loan volumes, the number of respondents who expect business to increase over the next quarter has dropped to 43.6 per cent – down by 13.2 per cent from Q1 2009 – while 42.4 per cent said they expect it to remain stable. Fourteen per cent of respondents indicated that they expect business to decline over the coming quarter.

The first home buyer segment of the market is earmarked for a slowdown in terms of driving business, with only 45.1 per cent of respondents indicating it would be the most active area in the quarter ahead, down by 19.2 per cent from Q1 2009.

The drop may reflect the fact the beefed-up first home owners grant will end in September as well as tighter lender criteria, which has shut many out of the market – mainly through genuine savings requirements as well as more restrictive LVRs.

Another possible factor is the slow-burning mood in the market that investors are likely to return in significant numbers, given low interest and vacancy rates. Compared to Q1 2009, 23.7 per cent now say the investor sector is going to be the strongest over the coming quarter, up considerably on the 11.4 per cent in Q1 2009.

When it comes to economic conditions, while respondents are somewhat disillusioned about the prospects for overall business growth, they’re bullish about the actions the federal government has taken to help tackle the financial crisis – particularly in terms of the RBA’s job at controlling inflation through its management of monetary policy.

Compared to Q1 2009 when 67.8 per cent of respondents agreed the government was doing a good job, Q2 2009 has registered an increase to 72.5 per cent.

In addition only 33.2 per cent of respondents believe overall economic conditions are worse this quarter compared to the last, down 11.7 per cent from Q1 2009’s 44.8 per cent, which itself was down by 15.9 per cent from Q4 2008.

In contrast to overall sentiment towards economic conditions, fewer respondents believe the current cash rate will have a positive impact on demand for home loans over the coming quarter. This reflects forecasts of slower volumes and stagnated business growth. Just 59.6 per cent of respondents said the current RBA rate would have a positive impact on the demand for home loans, down from Q1 2009’s 83.1 per cent.

It also appears most brokers feel the current downward rate cycle could have bottomed, with 53.2 per cent of respondents of the belief that rates will not change – up from last quarter’s 18.1 per cent.

Sentiment around property is relatively stable except for property sale levels. Just 28.0 per cent said that property sales would increase, down by 23.8 per cent from Q1 2009’s results.

PROPERTY COMMENTARY

While there’s consensus that property prices will remain static over the coming quarter, sales are unlikely to increase according to the survey’s respondents. Over 78 per cent believed that property over the next quarter would also represent good value, down by 9.3 per cent from Q2 2009.

“I think property in the range up to $500,000 is inflated due to the First Home Owner Grant (FHOG) and will continue to be so for the next six months. This applies to both established properties but also, and even worse, in the house and land sector. Properties over $500,000 are probably going to slide or remain static in price.”

Tony, LoanMarket

“The FHOG extension was a horrible idea. I have been saying for weeks that we are seeing inflated prices in that sector of the market. I cannot believe that the grant wasn’t changed for stamp duty concessions on purchases up to $1 million. The banks are undoubtably trying to find any reason at all to decline deals and make the broker look like an unnecessary step for people buying homes.”

Blake Buchanan, Moneywise Flight Centre

BROKER BUSINESS ISSUES COMMENTARY

Overall sentiment points to a slowdown in loan volumes and business growth for the period ahead. But there has been a slight improvement in hiring intentions and it would also appear brokers have begun to appreciate the power of their client base, with more respondents expecting to source business from existing clients over the coming quarter compared to Q1 2009.

“It is difficult to attract new clients and to get decent turnaround times. You have to look to lenders other than the main banks”

Paul Tuddenham, Thorsby Broking Services

“Volumes and confidence will not change until the banks start increasing their service standards for brokers, which will give clients more choice. Secondly credit criteria pertaining to mortgage insurance needs to be strongly reviewed because this in itself is stifling existing clients increasing their business.”

Peter Christoforou, Axis Financial Solutions

ECONOMIC COMMENTARY

While over half of the survey’s respondents believe the government is not doing a good job of managing the economy there’s a growing sentiment that the RBA is doing a good job of controlling inflation through its management of monetary policy .

“Our business has never been busier. It has been stated that with the drop in interest rates, the drop in fuel prices and the government hand outs, the average Australian family is about $10,000 p.a. better off. If it had not been for the negative fear campaign in the media, the Australian economy would have grown by between 3 per cent to 4 per cent. Can we please have a positive firm outlook on life with a half full glass.”

Laurie Parkes, FrontRunner Mortgage Group