Confidence across ‘mortgage belt’ up 11%: Westpac

Getting into and out of residential property might increasingly be seen as a dilemma for many consumers, but those currently with mortgages have shown “a lift in confidence”, according to Westpac Bank’s latest data.

While consumers continued to view this as a poor time to buy a dwelling, the big four bank’s Melbourne Institute Consumer Sentiment Index noted a “sharp improvement” in the outlook for house prices; a “lift in confidence” among respondents with a mortgage, up 11 per cent across the ‘mortgage belt’, coming off ‘all-time lows’; and a “significant improvement” in consumers’ outlook for their finances.

Sentiment still at near-record lows, but confidence is gaining

Overall, consumer sentiment increased by 3 per cent, from 78.0 in November to 80.3 in December, Westpac found.

Despite the lift in sentiment, however, overall sentiment still remained at near record lows. In fact, sentiment is still at its weakest reads recorded outside of a recession.

Inflation and the state of the economy remain households’ key concerns, the index found. 

Rising cost of living pressures were clearly still a pressing concern for vulnerable consumers, the index found - though consumers remained relatively confident about labour market prospects.

As Westpac chief economist, Bill Evans, explained: “In this survey we ask households about the news items that most caught their attention,” he said.

“The key topics have not changed since we last asked in September, namely: ‘inflation’; ‘budget and taxation’; ‘economic conditions’ and ‘interest rates.’

“In particular, the dominance of ‘inflation’ remains very clear with 58 per cent of respondents recalling news on this topic compared to 37 per cent for ‘budget and taxation’; 35 per cent for ‘economic conditions’ and 23 per cent for ‘interest rates.

“Respondents assessed the news across these categories as negative, with inflation and the state of the economy drawing the most concern.

“At least there has been no further deterioration since the September survey and, in the case of interest rates, there are even some signs that the news is becoming viewed as slightly less negative — consistent with the notion that the bulk of the interest rate tightening cycle is now behind us.”

Mortgagors hold key to confidence

Mr Evans suggested that the ‘less negative view’ of news might also be behind “a notable recovery in confidence” more generally among those respondents who hold a mortgage, up 11.3 per cent in the month compared to a 3.8 per cent rise for tenants and a 2.7 per cent fall among those who wholly own their property.

“When we asked respondents about the outlook for interest rates, 50 per cent of those surveyed after the RBA’s December decision expected the cash rate to increase by a further 1 percentage point (ppt) or more over 2023,” he explained.

“That is down from 60 per cent in November and a peak of 73 per cent in July.

“This shifting view on interest rates most likely contributed to a surprising lift in the outlook for house prices," he deducted.

Notable lifts in key consumer areas

The Westpac Melbourne Institute House Price Expectations Index also “surged” by 27.6 per cent from 91.1 to 117.3, it confirmed.

Mr Evans said the jump was prominent across all the major state housing markets and that the index components also showed a notable lift in confidence around the outlook for finances.

“The ‘family finances, next 12 months’ sub-index lifted by an impressive 6.9 per cent, while the ‘family finances vs a year ago’ sub-index fell by 0.9 per cent,” Mr Evans continued.

“Consumers’ medium-term outlook for the economy also lifted. The ‘economy, next 5 years’ sub-index increased by 5.2 per cent.

“That compares to a 0.4 per cent dip in the ‘economy, next 12 months’ sub-index,” he qualified.

Consumers continued to view now as a poor time to buy a dwelling, despite the sharp mark up in house price expectations.

In fact, the ‘time to buy a dwelling’ index fell 2.9 per cent to 74.9, holding near cycle lows.

The index has been stuck in the deeply pessimistic 75 to 80 range for the last six months and remains 43 per cent below its most recent peak in November 2020, Mr Evans explained.

“Affordability is a key driver of this index,” he said.

“The prospect of high prices is not always positive, particularly when interest rates are expected to move higher as well.

“The combination looks to be keeping homebuyer sentiment firmly in the doldrums,” he warned.

“Consumer risk aversion also remains intense more generally.

When asked questions about the ‘wisest place for savings’, the index found that "safe" or "defensive" options remain heavily favoured. For example, 34 per cent of consumers nominated ‘bank deposits’, and 21 per cent nominated ‘pay down debt’".

Conversely, fewer consumers favoured riskier options, only 8 per cent nominating ‘real estate’ and 7 per cent nominating shares.

[Related: Housing sentiment lowest on record, Westpac data shows]