Swiss Consumer Confidence Prevents a Property Bubble

One of the motivating factors behind why the Swiss property prices have held firm is the stability of the economy. One useful measure of economic stability is the general consumer confidence in a country. It reflects the degree of optimism that consumers have regarding the economy, as expressed through their savings and spending activities.

 

Source: Swiss National Bank

 

The general economic outlook indicator for Switzerland has been negative since the end of 2014. However, it has been gradually improving and, after reaching -25 in Q3 2015, the sentiment has improved to -6 in Q4 2016. It is common for general economic sentiment to fluctuate but this negative sentiment tends to correspond with the negative growth in retail spending as has been experienced recently in the country.

While the improvement in the general economic outlook index is encouraging, there is still significant concern over job security. This is one indicator that has been consistently negative, in spite of the particularly strong positive sentiment regarding unemployment. This may suggest that, while there is confidence in finding a job, it may be more of a challenge to ensure that the job is retained. Concerns over job security, though, could lead to potential postponements in the decision to purchase a house, especially if the acquisition is dependent on an underlying mortgage.

In spite of this concern, one particularly interesting and somewhat contradictory index is the likelihood of a major purchase indicator. This index essentially reflects whether it is currently a good or bad time for consumers to make a major purchase such as for a house, car or other large luxury item.

Since 2010, there have been only nine quarters that have indicated negative sentiment within the market, with the majority of quarters being strongly positive. While the Q4 2016 sentiment has been mildly negative at -2, this appears to be a seasonal trend with most fourth quarters being negative. This may be related to the fourth quarter being the winter Christmas season, during which time consumers may be directing their spending towards more expensive winter items and Christmas holiday shopping.

In addition to the positive outlook towards making major purchases, there is a strongly positive sentiment towards both current and expected savings relative to debt. Both of these indicators have remained almost only positive for the last 10 years. This implies that consumers are financially secure although they are mildly negative in terms of their overall financial position. Such confidence adds to the consumer’s certainty about making large purchase decisions.

Therefore, the positive sentiment towards major purchases is an encouraging sign for the Swiss property market. The Swiss property market has remained strong regardless of the overall consumer confidence signalling concerns with a predominantly negative index since 2011. The sustained positive major purchases index, though, suggests that the consumer market may continue to support the demand for properties in spite of prevailing market prices.