Housing optimism buoys consumer confidence

Optimism about continued property market strength helped buoy consumer sentiment in September.

The robust consumer confidence reading was pinned on optimism about current economic conditions in the wake of two recent rate cuts, with faith in the housing market holding at a high level.

Australian consumer sentiment rose marginally in September despite rising worries about the economic outlook.

The closely watched Westpac-Melbourne Institute Index of Consumer Sentiment lifted 0.3 per cent to 101.4 in September, continuing a period of stability that has seen the index average 100.3 across the past six months.

“This stability over the last six months has been despite significant events that can usually be expected to impact confidence,” Westpac chief economist Bill Evans said.

“[This includes] two interest rate cuts from the Reserve Bank and associated reductions in mortgage rates, a Commonwealth Budget, a federal election and some major developments offshore such as the surprise UK referendum result and the build -up leading into November’s US election.”

The robust showing was pinned on confidence in current economic conditions in the wake of two recent rate cuts, with faith in the housing market holding at a high level.

Despite house prices persistently striking record highs amid boomtime conditions in the core markets of Sydney and Melbourne, the ‘time to buy a dwelling’ index remained 7.5 per cent above its level of a year ago and well above the key 100-point mark that separates optimists from pessimists.

Overall, a slight drop in the ‘time to buy index’ to 109.3 was recorded in September, although a 4 per cent increase was noted in Sydney and a 5.1 per cent jump was seen in Melbourne.

“Confidence in the housing market is improving,” Mr Evans said.

“Confirmation of a continuation of improvements in the housing market was apparent in the Westpac-Melbourne Institute Consumer House Price Expectations Index which increased by 3 per cent for the month to be up by 6 per cent for the year.”

The outlook was not quite so rosy, however, with the subindex on future family finances revealing a 2.3 per cent drop in expectations for the coming year, alongside a 4.6 per cent fall in consumers’ views on the likely economic conditions for the next 12 months.

Such news forced the Australian dollar to weaken on the report, slipping to US74.65c at 10.50am (AEST), from US74.75c just prior to the release.

Mr Evans said the latest figures would have little effect on the rates outlook, with Westpac not anticipating a further rate cut this year unless an inflation report on October 26 undershoots expectations.