Rate cut momentum subsides

by Julia Corderoy23 Mar 2015
The momentum in the housing market following the Reserve Bank’s fresh wave of rate cuts is tapering off, as consumer sentiment on housing dipped in March.

Views on housing softened in March after February’s rate cut induced rally, according to Westpac’s latest consumer sentiment report. The index tracking assessments of ‘time to buy a dwelling’ fell 4.2% in March, reversing about half of last month’s 9.7% gain. 

At a score if 120.5, buyer sentiment is below its long run average of 123, but still is firmer than the average 113.4 read over the second half of 2014. 

Price expectations are producing a similar story, with the Westpac-Melbourne Institute House Price Expectations Index dipping 1.2% in March but following a sharp 6.9% gain in February. 

However, at a score of 148, the Index is still in solidly positive territory with over 61% of consumers expecting prices to rise over the next year.

Overall consumer sentiment declined by 1.2% in March, according to the report, but still remains 9.2% above its December low. Matthew Hassan, senior economist at Westpac, said this isn’t surprising. 

“Some softening in sentiment was always likely in March given the big lift last month following the RBA’s surprise 25bp rate cut. Interest rate moves often generate a big initial reaction that dissipates over time,” he said.

Westpac predicts a further 0.25% rate cut when the Reserve Bank meets for its monthly monetary policy board meeting on April 7.

“…[C]onfidence remains lacklustre overall, with sentiment neutral rather than optimistic and, we suspect, still quite fragile,” Hassan said.

“In effect, neither the national accounts nor sentiment have delivered enough ‘good news’ to tilt the balance of risks back to even.”