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Rate rise fears have eased considerably over August, according to the latest data from the Westpac-Melbourne Institute Mortgage Rate Expectations Index.
The index, which tracks consumer expectations for variable mortgage rates over the next 12 months, fell by 14.9 per cent in August. This decline has reversed approximately two-thirds of the 36 per cent surge observed in the previous three months.
Notably, around 10 per cent of this drop occurred before the Reserve Bank of Australia (RBA) announced its decision to keep interest rates unchanged in August.
This suggests that concerns over potential rate increases had already reduced significantly following the June quarter inflation update.
Additionally, this may be the result of influence from emerging signs of a monetary easing cycle overseas.
Westpac’s head of Australian macro-forecasting Matthew Hassan said that consumers breathed a “small sigh of relief” in August as the RBA left interest rates on hold at 4.35 per cent along with the support of incoming tax cuts and other fiscal measures becoming more apparent.
“That said, the Index remains at weak levels by historical standards, stuck in the 78–86 range that has prevailed for over two years now. The survey detail shows that cost of living and rate rise concerns are still weighing heavily,” Hassan said.
With the Westpac-Melbourne Institute Mortgage Rate Expectations Index now at 135.5, it has returned below its historical average of 143.7.
This shift is reflected in consumer sentiment, with just 45 per cent of those surveyed after the RBA’s decision expecting mortgage rates to rise over the next year. This marks the first time since May that this figure has fallen below 50 per cent.
The RBA is set to meet again on September 23–24. RBA governor Michele Bullock said in the post-meeting press conference following the August meeting that a rate cut does not align with the board’s thinking in the near term.
With the incoming data flow between the August and September meetings being unlikely to add any new information regarding the inflation pulse, Hassan said that the RBA will likely hold the cash rate once again.
Home buying sentiment drops well below historical average
Although consumers are less worried about potential rate rises, sentiment among home buyers has fallen to new lows, as the data revealed a significant decline in the ‘time to buy a dwelling’ index.
The index dropped by 5.8 per cent to 71.4, marking a new low for the year. This reflects a steep decline in buyer sentiment, particularly in NSW (66.1), where it has reached exceptionally weak levels. Sentiment is somewhat less negative in Victoria (76.9) and South Australia (76.0).
Nationally, the index has been at or below the 80 mark for two and a half years, indicating the most prolonged period of depressed home buyer sentiment in the history of the survey.
In comparison, the average index reading over the past 50 years is 120, according to Hassan.
However, the Westpac-Melbourne Institute Index of House Price Expectations showed a slight decline of 2.1 per cent, falling to 157.8. This brings the index back to levels seen late last year.
Consumers in Western Australia and South Australia continue to hold more optimistic views on future house prices compared to those on the eastern seaboard.
The average difference between these two groups is now approaching 20 points. Price expectations are particularly subdued in Victoria, where the state index reading of 143.5 is close to the long-term historical average.
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