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The latest Westpac-Melbourne Institute Index of Consumer Sentiment has found that the “time to buy a dwelling” index rose by 1.6 per cent in December to 74.3 index points, however, still remains at a “very weak level” by historical standards.
The report found that housing-related sentiment measures saw “small shifts”, although still painted a picture of “extreme tensions between stretched affordability and positive price expectations”.
Responses from the consumer survey revealed a turnaround of around 20 per cent in buyer sentiment, up from 65.3 index points before the Reserve Bank of Australia’s (RBA) latest cash rate decision, to 78.2 index points after the decision.
On a state level, buyer sentiment saw large increases in Queensland at 16.5 per cent, NSW at 11.6 per cent, with a “more subdued” gain in Victoria at 0.7 per cent.
Furthermore, Westpac found that consumers remained positive on the outlook for house prices, with the Westpac Melbourne Institute House Price Expectations Index decreasing slightly by 0.7 per cent to 157.3 index points.
Westpac Group senior economist Matthew Hassan said that two-thirds of consumers still expect prices to rise further over the next year.
“Price expectations lifted strongly in Western Australia and firmed in South Australia. Consumers in these states are now the most upbeat on the price outlook,” Mr Hassan added.
“In contrast, expectations slipped notably in Victoria, where price growth looks to have stalled in recent months.”
Overall, consumer sentiment declined 2.6 per cent to 79.9 index points in November, down from 82 in October, however, the RBA’s decision to hold interest rates at 4.35 per cent has “eased concerns that further rate hikes are imminent”.
“Despite the reprieve, consumers are still wary of the potential for more rate rises,” Mr Hassan said.
“Among those surveyed after the RBA decision, 60 per cent still expect mortgage interest rates to move higher over 2024. That is down on the 73 per cent read last month but still materially above the 48 per cent seen back in September, when policy appeared to be more firmly on hold.”
On monetary policy, Mr Hassan stated that the most recent National Accounts data released by the Australian Bureau of Statistics (ABS) has shown “decisively” that the joint effect of monetary and fiscal policies was “weighing on domestic demand and bringing it back in to balance with supply”.
Subdued growth and a weak household sector suggest that there is a “higher bar” for further macro-economic policy tightening, according to Mr Hassan.
“That said, high inflation remains the RBA’s primary concern, with the Board indicating it has a very low tolerance for any upside surprises on this front. As such, the next two months of inflation data and the detailed quarterly release out in late January will be critical to its policy decision in February,” Mr Hassan said.
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