Slight improvement in housing sentiment defies drop in consumer confidence in March: Westpac Index

The “time to buy a dwelling” sentiment has improved 1.7% in March to be up 5.5% over the past 12 months, according to the March Westpac–Melbourne Institute Index of Consumer Sentiment.

Housing sentiment was the only bright spot in the March result, which showed consumer confidence has retreated to levels prior to the interest rate cuts of November and December.

While the housing outlook improved, the attraction of shares continues to deteriorate.

Only 5.4% of respondents nominated shares as the wisest place to put their money – the lowest proportion since the early 1990s.

The overall index fell by 5% in March from 101.1 to 96.1, below the level in October last year, and was based on the responses of 1,200 adults aged 18 and older conducted from March 5 to 9.

With the index below the 100 level, pessimists clearly outnumber optimists.

The “time to buy a vehicle” sentiment fell by 2.8% to be down 7.8% for the year.

Commenting on the results of the survey Westpac chief economist Bill Evans says the “case has already been made for lower rates in Australia but expect that, at this stage, the board is not convinced.

“More time will be required before we see another rate cut. Our best expectation is in May or June,” he says.

According to Evans, the March result showed that sensitivity to interest rates has “clearly been one factor responsible for this weak print”.

“The survey in February closed off before it was announced that banks were raising their mortgage rates despite the Reserve Bank having kept the official cash rate on hold.

“Recall that the survey in February covered the week of the Reserve Bank’s board meeting. At the beginning of the week media reports had led respondents to confidently expect a 0.25% rate cut from the Reserve Bank,” says Evans.

“With the two previous rate cuts in November and December being passed on in full by the banks it is reasonable to assume that many borrowers expected a further cut in the mortgage rate of 0.25%. 

“Instead, mortgage rates were actually increased in the following week with banks raising mortgage rates by an average of 10 basis points. 

“It is likely that this reversal has impacted confidence. 

“This ‘rate effect’ is consistent with the 6.8% fall in the confidence of those folks who have a mortgage. However this observation does not explain why there was a 10.8% fall in the confidence of respondents who are renting accommodation. 

“There are other forces at work. Petrol prices for example, rose 3% between the February and March survey to average around $1.45 a litre,” he says.

Evans says supplementary questions indicate that respondents are particularly concerned about economic conditions and employment with notable weakness in how respondents view their finances. 

“The subindexes tracking responses on ‘family finances compared to a year ago’ fell by 8.6%; and ‘family finances over the next 12 months’ fell 4.5%. 

“The economic outlook also deteriorated, the sub-indexes tracking views on ‘economic conditions over the next 12 months’ fell by 2.5% and ‘economic conditions over the next 5 years fell by 6.1%,” Evans says,

“Saving plans continue to be very conservative with 34.6% of respondents assessing bank deposits as the ‘wisest place for savings’. That is up from 30.1% in December although below the record 37.8% proportion in September 2011,” he says. 

The sub-index tracking views on “whether now is a good time to buy a major household item” fell by 3.8%.