A new analysis from Westpac chief economist Luci Ellis (pictured) points to a clear lift in household spending – but without signs of an overheating economy.
For mortgage brokers, this combination of rising real incomes, still‑cautious sentiment, and a genuine cyclical upswing in consumption has important implications for demand, refinancing, and borrower risk in 2026.
Spending is finally picking up after years of weakness, but that doesn’t mean a runaway inflation or rate‑shock scenario.
As Ellis notes, “A genuine cyclical upswing in consumer spending is underway.” It has been building since early last year, with timely indicators showing the December quarter as particularly strong and real consumption growing at about 1% for the quarter in volume terms.
Crucially for mortgage strategy, Ellis stresses this should not automatically be read as a dangerous demand boom or a trigger for much higher interest rates. Recent strength follows several years of subdued consumption; in that context, today’s growth looks more like catch‑up than overheating.
Households are spending more because they genuinely have more income, not because they are leaning harder on credit, the Westpac analysis said.
After several years where real incomes barely moved, Ellis highlights that real incomes have now climbed back to pre‑pandemic trends. As she puts it, “Real disposable income per person is now back close to the pre-pandemic trend.”
Lower inflation, Stage-3 tax cuts, and some relief from interest rates have all contributed to this improvement in purchasing power, alongside wealth effects from earlier gains in housing prices.
One of the most important points in the report for brokers is that the upswing is not confined to higher‑income households.
Ellis writes, “Nor is this a ‘K-shaped’ economy story where the recovery is narrowly based on spending by the already well-off.” Data from Westpac–DataX show spending growth has strengthened across income brackets and age groups, including in the lowest tax bracket where spending had previously lagged.
Despite stronger spending, consumer sentiment remains downbeat.
Ellis notes a stark divide: “Only outright homeowners – those without mortgages – are net optimistic as a group.”
Renters and households with mortgages remain mostly pessimistic, and that pessimism has increased as the interest rate outlook has shifted.
Ellis raises the question of whether the disconnect between spending and sentiment signals a more fragile recovery than the raw numbers suggest. While the base case is continued growth, she outlines a plausible downside path where spending slows if:
Ellis concludes that, at least for now, the story is about incomes, not runaway demand.
“Consumers have been spending more because they (finally) have more income to spend. We expect this to continue – even with some moderation in income growth back towards pre-pandemic averages – and do not necessarily see it as cause for alarm,” the Westpac economist said.
For mortgage brokers, that translates into a clear positioning opportunity:
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