Mortgagor confidence up, but overall sentiment still languishes

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 1.5 per cent in September to 79.7 index points, down from 81 in August. However, the index has recorded a lift in the confidence of mortgage holders as fears of further rate rises wane, up 7.8 per cent in September.

Despite the gain, it was offset by decreasing confidence in renters and those who own their homes outright, down by 6.1 per cent and 5.8 per cent, respectively.

Westpac chief economist Bill Evans stated: “Sentiment has languished at deeply pessimistic levels for more than a year now.”

“Since the survey began in 1974, the only comparable period of such sustained weakness was during the recession of the early 1990s when even weaker levels held for more than two years.”

The report further revealed the topics of most interest for consumers in September, with inflation in front at 53 per cent, followed by budget and taxation (34 per cent), economic conditions (34 per cent), interest rates (25 per cent) and employment (23 per cent).

The latest monthly Consumer Price Index (CPI) data revealed encouraging signs that inflation is beginning to moderate, with the CPI indicator rising by 4.9 per cent in the 12 months to July 2023, down from the 5.4 per cent recorded the previous month and the lowest since February 2022.

In terms of interest rates, the report stated a “notable shift” in rate expectations. Of the respondents surveyed following the latest Reserve Bank of Australia (RBA) monetary policy meeting, 48 per cent expected rates to rise over the next year, down from the 68 per cent recorded after the August RBA meeting.

During the September monetary policy meeting, the RBA agreed to hold the official cash rate at 4.1 per cent for the third consecutive month.

In what was his last board meeting, outgoing RBA governor Philip Lowe said the higher rates were working to establish a "more sustainable balance between supply and demand in the economy". Along with this, uncertainty in economic outlook had a role to play in the RBA holding rates steady.

According to the report, this followed two years of every survey finding an outright majority of consumers expecting rates to go higher, despite only 15 per cent of consumers expecting rates to be cut over the next year.

“The recall numbers for inflation have fallen a little over the last three months, but this remains the dominant topic by a wide margin, especially compared to interest rates.

“The cost of living remains the key negative for confidence in this cycle. While the ‘threat’ of rising rates is expected to ease further, a sustained recovery in confidence will only emerge when households are much more comfortable with the cost of living,” Mr Evans said.

In addition, the “time to buy a dwelling” index revealed a slight gain of 0.6 per cent; however, it still remains at “very weak” levels overall at 72.5 index points.

This drop in the "time to buy a dwelling" index followed a fall of 5.7 per cent in August to 72.1 per cent after a gain in July and returned to "near extreme historical lows" with the long-run average of 121.

The Westpac Melbourne Institute House Price Expectations Index rose 2.2 per cent to 154.6, with over 65 per cent of consumers expecting prices to rise over the next 12 months.

“The index is now 70 per cent above the recent low in November 2022 and only 5.5 per cent below the peak during the housing boom in 2021,” Mr Evans said.

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