Consumer sentiment for buying a house at two-year high: Westpac

Further encouraging signs for the housing market have emerged in the September Westpac Melbourne Institute Index of Consumer Sentiment. 

The sub-index tracking responses on “whether now is a good time to buy a dwelling” jumped by 15.1% following an 8.1% overall gain in consumer sentiment from August to September. 

“[The sub-index] is now at its highest level for two years and is certainly sending an encouraging signal to an otherwise subdued housing market,” says Westpac chief economist Bill Evans. 

However, he cautioned that there is a risk that this signal may be overstating the prospects for the housing market. 

“With households still being particularly concerned about their own financial position over the next 12 months there is a risk that, while seeing value, they will not be prepared to act on this,” Evans says. 

He says support for the bank’s cautious view on housing can be seen in households’ attitudes towards the wisest place for savings. 

“This question did not send quite the same positive message to the housing market with a modest increase (14.6% to 16.8%) in the proportion of respondents who favoured real estate as a wise place for savings. That was despite a further reduction in those favouring equities from 8.4% to 7%.

“In both cases household favourability continues to run at historically low levels.” 

The Westpac Melbourne Institute Index of Consumer Sentiment now stands at 96.9 compared with 89.6 recorded in August, a “surprisingly strong result” that Evans says “emphasises just how important interest rates are to households”. 

“Concrete evidence of the improved outlook for interest rates came shortly after the August survey when the major banks actually lowered their fixed-rate mortgage rates. While possibly coming as a surprise this action would have comforted anxious households,” Evans says. 

“The second contributing factor is likely to be the strong recovery in economic growth in the June quarter which was reported to have been 1.2% following the contraction of 0.9% in the March quarter. That development gained particularly wide media coverage and would have boosted households’ spirits.” 

Despite the surprisingly strong September rise, the index remains at a weak level overall, reflecting the very weak starting point in August. 

It is 14.8% below the average reading in 2010; 14.4% below its level a year ago; 7.1% below the average for the first half of 2011 and 4.2% below the reading in June. 

All the components of the Index increased in September. 

• The sub-index tracking respondents’ assessments of family finances compared to a year ago surged by 11.2%
• the sub-index on expected finances over the next 12 months was up by 9.5%;
• the sub-index tracking the outlook for economic conditions over the next 12 months surged by 16.6%;
• the sub-index measuring consumers’ 5 year economic outlook was up by 4.5%;
• sentiment towards buying a major household item increased by 3.2%.