Optimists still outnumber pessimists, but housing sentiment turning into consumer caution: Westpac

NSW consumers are glass-half-full types when it comes to the housing market, with the ratio of optimists to pessimists higher there than in any other state or territory, according to Westpac’s July Red Book. 

In the July Westpac– Melbourne Institute Consumer House Price Expectations Index, Westpac senior economist Matthew Hassan notes that NSW housing market optimists outnumber pessimists by 24%.

However, Hassan warns of the fragility of consumer views on housing: “The consensus [on housing] also seems to have low conviction with opinions very erratic month to month, especially at the state level.”

The most pessimistic states are Queensland and South Australia, with pessimists outnumbering optimists in the Sunshine State.

Nearly half (47%) of Victorian consumers expect house prices to rise. Western Australian consumers are the least worried about the market, with only 13% expecting house prices to fall.

Overall, 42% of Australian consumers expect house prices to rise over the next year, a third expect prices to be steady, and 26% expect declines. This is the weakest mix since May 2009, when a third of consumers expected rises and a third expected price falls.

 Hassan warns that weaker prices and reduced price expectations will reinforce the shift to consumer caution and increased saving.

Released at the same time as Westpac’s Red Book, the NAB July quarter business survey shows that business conditions improved for the construction sector in the second quarter of 2011 but worsened for those in property.

According to NAB, business conditions in mining remain the strongest across all sectors, with the gap between the best- and worst-performing sectors widening to a point last seen during the 2000 recession.

Conditions improved for the construction sector in the July quarter.

According to NAB, the increasing gap between weak and strong industries is due to a weakening in the poor performers, rather than strong performers like mining doing better.

Overall, while business conditions improved slightly in the June quarter, they remain soft, with confidence down and further weakness expected in the near term.

In the June 2011 quarter profitability rose, employment eased a little and trading conditions were broadly unchanged. Forward orders remained weak and stocks were unchanged, consistent with softer domestic demand in the near term.

Conditions improved solidly in Queensland over the quarter, but it remains the weakest performing mainland state.

Confidence deteriorated across all mainland states, with the sharpest declines recorded in Queensland, NSW and Victoria. Sentiment was weakest in SA and highest in WA.

Consistent with a fall in average hours worked, short- and long-term employment expectations softened, although overall expectations remained above current levels implying that the labour market may continue to tighten.