Rate expectations driving lift in sentiment

The latest ANZ/Roy Morgan Consumer Confidence Index has reported a 1.2 per cent increase in sentiment towards current financial conditions – the highest since February – and a 0.8 per cent rise in sentiment towards future financial conditions.

Sentiment towards current economic conditions has also spiked, rising 3 per cent, while future economic conditions were up 4.5 per cent.

According to ANZ Research’s head of Australian economics, David Plank, the lift in sentiment has been driven by expectations of a rate cut from the Reserve Bank of Australia (RBA) and a shift in outlook for the housing market.

“Consumers are upbeat about both their personal outlook and the economy in general,” Mr Plank said.

“The prospect of lower interest rates and what appears to be a major sentiment shift on the housing market are likely drivers of the positive outlook.

“The gain comes despite negative developments in the global economy.”

In an address to the Economic Society of Australia last week, governor of the Reserve Bank of Australia (RBA) Philip Lowe revealed that the central bank’s board would “consider the case” for a cut to the official cash rate in June.

Mr Lowe’s address coincided with the releases of minutes from the RBA’s monetary policy board meeting in May, in which it held the official cash rate at 1.5 per cent.

However, with inflation and labour market indicators continuing to fall below target, Mr Lowe said that monetary policy “has a role to play” in reversing the subdued market conditions.

Further, according to founder and CEO of Empower Wealth Ben Kingsley, the rejection of the Labor opposition’s proposed changes to negative gearing and the capital gains tax has also restored confidence in the property investment space.

Mr Kingsley revealed that he’s already experienced a rise in enquiries from investors since the announcement of the Coalition’s electoral victory. 

“I can tell you that, just in the last 48 hours, the phone’s been ringing; people now have some level of [certainty] around what to do,” he said.

“Four people contacted me personally yesterday saying, ‘I’m ready to go’.”

The Australian Prudential Regulation Authority’s proposal to remove its 7 per cent interest rate floor for the assessment of home loan applications and the Coalition government’s First Home Loan Deposit Scheme have also been touted as sources of optimism in the housing market.  

Such trends have prompted AMP chief economist Shane Oliver to forecast a sooner than expected return to equilibrium in the housing market.  

“Our forecasts for national average prices have been for a price fall of 15 per cent top to bottom (of which we have done 10 per cent so far), and for Sydney and Melbourne, it’s been for a price fall of 25 per cent top to bottom (of which Sydney has already done 15 per cent and Melbourne 11 per cent) and for prices to bottom in 2020,” Mr Oliver noted.

“Reflecting [developments in the market], we are revising the estimate for Sydney home prices to a 19 per cent top-to-bottom fall, Melbourne to 15 per cent top to bottom (partly because it has been holding up much better, likely reflecting stronger population growth) and the national average to 12 per cent top to bottom, with prices likely to bottom by year end.”  

[Related: Moody’s fears ‘resurgence’ of ‘excessive’ mortgage growth]