Major bank flags ‘remarkable’ housing sentiment lift

The Westpac Melbourne Institute Consumer Sentiment Index fell by 7.9 per cent, from 85.8 in April to 79.0 in May, wiping out April’s short-lived bounce in sentiment, which was predominantly influenced by the central bank’s cash rate pause.

The drop in consumer confidence followed the Reserve Bank of Australia’s (RBA) 11th hike, which took many economists by surprise, bumping the cash rate to 3.85 per cent.

The survey revealed bigger sentiment declines for those with low incomes, which fell 15 per cent; renters’ confidence dropped 13 per cent; and mortgagors went down 10 per cent.

Westpac economist Bill Evans said the low index was reflective of the “dismal levels seen back in March, which recorded the lowest monthly read since the COVID-19 outbreak in 2020” and, before that, since the deep recession of the early 1990s.

“The bigger fall in confidence among renters than mortgagors came despite the strong interest rate theme and highlights the extent to which tight rental markets and surging rents are putting intense pressure on a group, that makes up around 30 per cent of households,” Mr Evans said.

Despite clear concerns about rising interest rates, housing-related sentiment posted a sharp lift in May, which was “internally inconsistent” given the rising rate environment.

For example, the ‘time to buy a dwelling’ index lifted 7.3 per cent in the month, extending the 8.2 per cent gain in April.

Buyer sentiment reached 76.3, which is still only reversing the sharp 16 per cent weakening through February and March, Mr Evans explained.

“The level of the buyer-sentiment index in May is still 42 per cent below the most recent peak in November 2020,” he said.

The “standout result in this month’s survey” is the House Price Expectations Index, which surged a remarkable 10.7 per cent, to 144.3, hitting the highest level since February last year, Mr Evan said.

The survey, which is usually conducted in the week of the RBA meeting, was delayed a week to gauge the sentiment impact of the federal budget.

As such, sentiment among those surveyed before the budget announcement showed an index read of 81.3 (down 5.3 per cent compared to April), while sentiment among those surveyed after the announcement came in at 75.3, down an additional 7.4 per cent.

“A strict interpretation would attribute about 60 per cent of the May fall to the federal budget and the remaining 40 per cent to the interest rate decision and other factors,” Mr Evan said.

However, Mr Evans said that interpretation could be a little “harsh” on the budget, where in fact some “consumers may also have had unrealistic expectations going into the budget”.

He noted a big decline in the group that has the most at stake around inflation — that is “households with a mortgage”.

“For 2023, 15.5 per cent of those surveyed after the budget expected it to improve their finances and 27 per cent expected it to be worse off,” the report revealed.

Mr Evans noted that pessimism often outweighs optimism post-budgets, except for example, during the pandemic where fiscal stimulus was generous.

[Related: Mortgagors confidence surges in April amid rate pause]

Kate Aubrey is the senior content producer of Momentum Media's mortgages titles: The Adviser and Mortgage Business.

Prior to joining Momentum Media, Kate covered regional and breaking news for ABC Radio for more than three years.

She has a Master of Arts in Journalism from the University of Melbourne and a Bachelor of International Business and Business Management from Griffith University.

Email Kate at: This email address is being protected from spambots. You need JavaScript enabled to view it.