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Consumer sentiment has fallen sharply in October, wiping out the cautious optimism that emerged earlier this year as borrowers recalibrate to a higher-for-longer rate environment.
The Westpac–Melbourne Institute Consumer Sentiment Index dropped 3.5 per cent to 92.1, its lowest level in six months, signalling a decisive turn back into pessimistic territory. The decline follows a two-month slide of 6.5 per cent that has erased the gains made between May and August, when the first signs of monetary easing had lifted household morale.
“Consumers appear to have been rattled by recent updates on inflation,” said Matthew Hassan, Westpac’s head of Australian macro-forecasting.
Partial inflation indicators released in recent weeks showed price growth edging towards the top of the Reserve Bank’s 2–3 per cent target range. Combined with evidence of renewed strength in consumer demand and housing activity, those data appear to have unsettled borrowers who were expecting faster rate relief.
The Mortgage Rate Expectations Index, which tracks households’ outlook for variable mortgage rates, surged 15.6 per cent to 101.7 in October. The survey data show how quickly sentiment turned over the course of the week.
“Just over half expected mortgage interest rates to rise over the next 12 months, compared to about a third of respondents surveyed after the [RBA] announcement,” the report said.
The RBA’s decision to keep the cash rate steady in September helped steady nerves somewhat, but uncertainty remains high. Among those surveyed after the meeting, two-thirds expected mortgage rates to be the same or lower within a year — a more subdued reading than in September, when nearly seven in ten respondents predicted lower rates.
For mortgage professionals, this data suggests a market still waiting for conviction that policy settings have peaked. Even small changes in expectations are influencing borrower behaviour and refinancing interest.
Households are becoming more cautious about their finances. The “family finances, next 12 months” sub-index fell nearly 10 per cent to 97.1, the weakest result in over a year, while the “family finances versus a year ago” measure dropped 4.8 per cent to 82.1.
Current assessments of financial conditions are now firmly pessimistic, suggesting the effect of earlier tax cuts and lower interest rates is fading. The “time to buy a major household item” index also dipped 1.1 per cent to 97.2, extending a long stretch of subdued readings.
Westpac economists noted that while households are less financially constrained than last year, they remain “very value-conscious heading into the peak retail sales periods.”
Despite the broader gloom, housing optimism continues to rise. The Index of House Price Expectations increased another 2.1 per cent in October to 171.9 — its highest point in 15 years.
“Just over three-quarters of consumers expect prices to rise over the next 12 months,” the bulletin reported, with confidence strongest in Queensland and more moderate in Victoria and Western Australia.
However, the “time to buy a dwelling” index remained subdued at 96.5, consistent with affordability pressures that continue to weigh on first homebuyers and investors.
Not all the news was negative. The Unemployment Expectations Index fell 2.9 per cent to 127.6 — a sign that consumers still see the labour market as stable.
At the same time, short-term expectations for the economy weakened, with the “economic outlook, next 12 months” measure slipping 2.5 per cent to 89.9. Long-term confidence proved more resilient, rising slightly to 94.0, just above its long-run average.
The Reserve Bank’s next monetary policy board meeting on November 3–4 will be closely watched by lenders, brokers, and borrowers alike. Westpac expects that with inflation tracking within target and monetary policy still “a little on the restrictive side,” the next move is likely to be a rate cut — though the timing remains uncertain.
“The [Monetary Policy Board] remains cautious, especially after the stronger-than-expected result for the August CPI indicator,” the report said. “A cash rate cut in November is far from assured, though neither is it off the table.”
For mortgage markets, this mixed picture — falling confidence, resilient jobs, and strong house price expectations — highlights the delicate balance ahead. Borrowers are waiting for proof that the easing cycle will continue, while lenders must navigate a market where expectations shift as quickly as inflation data.
At 92.1, consumer confidence may be back in pessimistic territory, but it is clear Australians are not giving up on property. For now, the question is whether the RBA can deliver the relief households are hoping for — and how long that hope will hold.
