Mortgage holders have responded positively to this month’s rate cut, but overall consumer sentiment is disappointing, says the Westpac Melbourne Institute Index of Consumer Sentiment report for December.
The monthly survey shows consumer sentiment fell by 4.1%, from 104.3 in November down to 100 in December.
Westpac’s chief economist, Bill Evans, says the results are unexpected.
“When we saw the 5.2% increase in the index in November, which came despite the Reserve Bank surprising by holding rates steady, it appears that sentiment was finally starting to respond to the accumulated series of rate cuts since November last year. With that in mind, it was therefore reasonable to expect that the index would respond quite positively to the rate cut the Reserve Bank delivered last week.”
Households with a mortgage were the most upbeat, with confidence levels rising 4.4%. Other respondents, however, including renters and property owners without a mortgage, were more pessimistic, with confidence levels lowering 9.1% and 10.9% respectively.
“The rate cut has further boosted confidence around whether now is a good time to purchase a house with the index tracking sentiment on this improving by a further 1.9% to reach its highest level since September, 2009.”
Evans says authorities will be pleased that housing confidence is building, although on-going pessimism surrounding the economy and employment will likely limit the impact on actual housing market activity.
The report also found a 4.1% increase – up to 24% - in the proportion of respondents who favour real estate with regards to savings preferences, representing the highest reading since 2005.
Evans says he expects further rate cuts following the Reserve Bank’s February 5 meeting.
“Evidence to date is that low rates are not generating much traction with households. Hence, there is likely to be a decision to further ease rates in February or March.”