Mortgage holder confidence soars following November rate cut: Westpac

Confidence among mortgage holders has soared following the November rate cut by the Reserve Bank, according to the Westpac Melbourne Institute Index of Consumer Sentiment, which improved in November.

Westpac chief economist Bill Evans says the significance of the rates decision is most apparent from the breakdown in responses among home owners.

“Confidence amongst those folks which have a mortgage soared by 13.9%; and people who own their house mortgage free boosted their confidence by 6%,” Evans notes.

“The Index is now indicating that optimists slightly outnumber pessimists for the first time since June 2011 and this is the highest reading for the Index since May 2011.

“However it is still 6.7% below its level last year.”

Evans recalls that the index fell by 5.3% in response to the rate hike in November last year.

He says the changes follow the same pattern as 2008, when the Reserve Bank cut rates for the first time in that cycle.

When the bank stopped threatening rate hikes sentiment grew 9.1% and when the cuts were delivered that year sentiment went up another 6.3%.

In the past week the Westpac Melbourne Institute Index of Consumer Sentiment increased by 6.3% in November from 97.2 in October to 103.4 in November.

Although sentiment towards housing improved by a solid 6.5% in November, sentiment towards purchasing a motor vehicle was down by 3%.

The Reserve Bank Board next meets on December 6.

“Our view has been that the easing cycle which has now begun is likely to be much more measured than the one we saw in 2008, when rates were slashed by 300bps over four consecutive meetings,” Evans says.

“Accordingly, we would expect the next move to be in February next year when the Bank has had time to assess the impact of the first move; more information is available about the global economy; and further evidence is available on inflation.

“However, our interpretation of the bank’s recent statement on monetary policy is that it is troubled by developments in Europe and, due to a more downbeat assessment of the domestic economy, sees clear room to cut further.

“Developments overseas, as we saw in 2008, have the potential to move the next cut forward to December but, for now, our call remains that the next move will be 25bps in February with a further 50bps in cuts over the course of 2012,” Evans says.