Australians pull the reins on home buying

The Commonwealth Bank’s (CBA) Household Spending Intentions (HSI) Index fell 0.5 per cent down to 114.9 in September from 115.5 a month earlier, as higher interest rates begin to take a toll on household spending.

It was the first month the CBA reported a decline in the HSI since the Reserve Bank of Australia (RBA) began hiking interest rates earlier this year.

While economists have indicated household spending was expected to ease, it had mostly been resilient to date.

However, since the central bank had started to lift interest rates in May, taking the cash rate to 2.6 per cent in October, CBA’s latest data showed the biggest declines in spending intentions where felt in health and fitness, home buying, household services and transport.

CBA economists expect to see a more pronounced impact on the HSI index — which combines Commonwealth Bank of Australia (CBA) payments data and Google Trends search information — in the months ahead.

The Home-buying intentions index fell by 4.4 per cent in September, which partly offset some “surprising strength” in August, chief economist Stephen Halmarick said.

“The effect of rising interest rates is beginning to impact on household budgets and Australian consumer spending is adjusting accordingly,” Mr Halmarick said.

“Households are seeing a noticeable difference to their mortgage repayments and therefore are considering how they can adjust their expenses elsewhere.”

The data also revealed the number of home loan applications was lower in September, relative to August 2022 and September 2021.

In addition, as Corelogic data recently revealed dwelling prices fell by a further 1.4 per cent, CBA continues to expect a peak-to-trough decline in dwelling prices of 15 per cent by 2023.

In a reversal from August, the Health and fitness category declined by a sharp 11.2 per cent in September, with fewer visits to doctors and dentists.

By contrast, motor vehicle spending rose 6 per cent in September, following a strong 14 per cent gain in August.

“The gains in the Motor vehicle index provides some relief for the industry, as global supply chain issues begin to resolve. The improvement follows the strength seen in August, with additional deliveries of vehicles coming into Australia,”

“Meanwhile, transport spending has reduced, yet we can expect an increase in the coming months as petrol prices rise as the governments excise levy returns to its full amount,” Mr Halmarick said.

After correctly predicting the latest interest rate increases, CBA’s Economics team forecast a further 25-bp rise at the RBA’s November Board meeting, before the RBA holds to assess the lagged impact of rate rises on the Australian economy.

[Related: Home-buying ambitions continue to sink: CBA]