Although consumer sentiment is improving, only a longer and more sustained lift will prompt a recovery in Australia’s housing market.
RP Data researcher Cameron Kusher cites the Consumer Sentiment Index released by Westpac and the Melbourne Institute for July, which rose to 99.1 points – close to the neutral mark of 100.
Since interest rate cuts began in November 2011, average mortgage rates have fallen by 95 basis points, but sentiment from October 2011 has risen by just 1.9 percent.
“Consumers simply aren’t responding to lower interest rates in the way they have in the past,” Kusher says.
“Clearly, in this current economic environment of global and domestic uncertainty, a lower interest rate environment is not proving to be enough to encourage a higher level of consumer optimism.”
“Although we’ve seen an improvement in all components of the Consumer Sentiment Index over recent months, respondents were particularly pessimistic about family finances over the past year and coming year.”
“This result suggests that although lower interest rates should ease financial burdens on families, there are other factors leading to lower expectations of finances.”
“If you chose to speculate, factors such as the carbon tax, political concerns both domestically and internationally, and concerns of a Chinese economic slowdown coupled with a failing European economy, may also come into play.”
Kusher says mortgage rate cuts take time to filer through to the market, and although capital city home values rose by 1.0 percent in June, sales volume data is yet to show signs of recovery.
“We may see further improvement in sales activity in the spring which is typically a busier time for the housing market. The key ingredient to an improvement in the housing market is likely to be an ongoing and sustained improvement in consumer sentiment, particularly a willingness to spend on high commitment purchases,” Kusher says.