The job market, mortgage interest rates and the migration balance are often considered to be the main determinants of real estate market performance. However, one can question whether consumer confidence is a determinant of real estate market performance or whether it is simply influenced by the same factors. Whatever the case may be, these two variables appear closely related.
Consumer confidence, and more specifically the sub-index related to the real estate market, is an interesting variable to watch as it seems closely linked to the real estate market.
Since the start of 2015, in Québec, the consumer confidence level has been higher than the average of the last ten years, and there has also been an upward trend in the confidence level. More recently, the proportion of Quebecers who believe the time is right to make a major purchase, such as a home, has exceeded 40% nine times in the last 17 months, an unprecedented proportion that had not been seen since the summer of 2005. At the same time, on the residential real estate market, sales and prices have returned to growth in Québec: sales increased by 5% in both 2015 and 2016, and have posted the same increase since the start of 2017. Weighted average price growth in Québec has also strengthened over the past two years, with increases of 3% in 2016 and 4% from January to September 2017.
The correlation between seasonally adjusted Centris® sales and the confidence sub-index is 0.46 over the period examined, which is considered to be a moderate correlation. This correlation does not change when confidence and sales are staggered by one month, and it decreases if the periods move further apart. It is therefore not wrong to conclude that sales and the proportion of Quebecers who feel it is a good time to buy a property follow the same trends, and do so at the same time. Consumer confidence will therefore confirm that good real estate market performance is no accident when the confidence level is doing well.
To learn more about the relation between consumer confidence and the real estate market, click here.