The latest Westpac-Melbourne Institute consumer sentiment index, which involved a survey of 1,200 consumers from 3 September to 7 September, dropped to 100.5 in September, down by 3 per cent from 103.6 in August.
While it is the lowest figure since November 2017, a consumer sentiment index level greater than 100 suggests that optimism still outweighs pessimism.
The fall in confidence has been attributed to mortgage rate hikes of 14 to 16 basis points by three of the four big banks, household budget pressures and political turmoil in Canberra, which saw Malcolm Turnbull replaced by former Treasurer Scott Morrison as Prime Minister.
Bill Evans, chief economist at Westpac, said that the overall decline in confidence may have been offset by the release of Australia’s second-quarter GDP report, which showed that Australia’s economy grew by 3.4 per cent in the year to 30 June 2018, the fastest increase in almost six years.
Perceptions around whether it’s a good time to purchase a major household item slid by 2.2 per cent, which is also the lowest figure since November last year, while views on whether it’s a good time to purchase a home slipped by 4.8 per cent.
Outlook for house prices also fell by 3 per cent in September, reaching the lowest level since December 2015.
“Expectations have shown a particularly sharp fall in New South Wales, down by 12.8 per cent over the month and 40.6 per cent from September last year. Most respondents in the state now believe home prices will fall in the year ahead, a mindset that could prove to be influential in the busy spring season ahead,” the Westpac-MI report stated.
Views on prices in other states were more optimistic, particularly in Queensland and South Australia.
Additionally, the portion of consumers who selected real estate as the “wisest place for savings” was 12 per cent, compared to 8 per cent of respondents who nominated shares.
Nearly 64 per cent expressed their view that bank deposits, superannuation and paying down debts would be the safest places to invest savings.
The survey further showed that confidence among households with mortgages took a significant hit in September, falling by 5.6 per cent over the month, nearly double the decrease in the overall index.
Views on family finances were “notably weaker” during the period the survey was conducted, according to Mr Evans, with the sub-indexes of “family finances vs a year ago” and “family finances next 12 months” both declining by 3.6 per cent.
While all components of the index deteriorated in September, the largest fall was reported in the “economic outlook over the next five years” sub-index, which waned by 5.8 per cent, compared to a decline of 0.1 of a percentage point in the 12-month outlook.
Mr Evans said that the change in prime minister had a pronounced impact on Liberal Party voters, with confidence among this group sliding by 6.4 per cent. Sentiments among those who did not nominate a political party preference declined by 6.6 per cent.
Conversely, confidence among Labor Party supporters improved by 4 per cent.
Another monthly survey by National Australia Bank, which was the only major bank to keep its interest rate on hold, this week showed that business confidence had also plunged in August to its lowest level in two years, despite stabilising conditions.
The survey, conducted shortly before the leadership spill, found that business confidence fell by 3 points to the below-average figure of 4 points in August, while business conditions rebounded, increasing by 2 points to 15 after a number of consecutive falls.