As house prices scale new heights in Sydney and Melbourne, consumer attitudes towards the property market appear to be getting much gloomier.
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If history is any guide, this could translate into softer demand from many buyers over the coming months, at a time when regulators are also working hard to rein in a surge in mortgage lending.
That is worth remembering if you're someone looking at buying in Sydney or Melbourne's property markets at a time like this, after a period of strong price growth.
The closelywatched Westpac Melbourne Institute consumer sentiment index this year has reported a steady decline in the share of respondents who believe now is a "good time to buy a dwelling."
The sub-index for this topic last month dipped to a reading of 94.8 points, where a reading of 100 means pessimists balance optimists. That is its lowest level since mid 2010.
As the graphic shows, this measure has declined from more than 140 points in the last two years or so – the same period in which house prices have gone through the roof.
The decline has been especially sharp in NSW and Victoria – which makes sense when you consider prices have leapt 18.4 per cent in the last year in Sydney and 11.5 per cent in Melbourne.
What is the significance of the decline?
Over the several decades these researchers have been asking this question, some clear correlations have emerged.
When people become more pessimistic about property, it tends to be followed by softer period of housing demand, reflected in lower turnover and home loan approvals.
Westpac economist Matthew Hassan says it is a signal that demand from buyers, especially owner-occupiers, is likely to come off the boil over months ahead.
"It's sending a pretty clear message that the cycle has peaked and we are moving into some sort of downturn," he says.
There are also some reasons to think there will be softer demand from the group of buyers that has put a rocket under prices recently: housing investors.
Banks are being forced to curb growth in their housing investor loan books to less than 10 per cent a year. These rules have prompted them to raise interest rates for investors and tighten loan policies.
Over the coming months, economists expect this clampdown will slow housing investor credit growth, taking some of the heat out of the market.
What might softer demand mean for someone thinking about buying a home?
It could mean auctions are not quite as competitive - there have already been tentative signs of lower clearance rates in Sydney and Melbourne in recent weeks.
Hassan says there is no evidence yet to suggest there will be outright price falls.
He says that would probably require some other factor aside from softer demand, such as rising interest rates, a sharp economic slowdown, or an oversupply of properties.
Nonetheless, the prospect of softer demand from owner-occupiers – at a time when investors are also likely to find it harder to get credit – is a reason for caution from buyers.
