Housing optimism evaporates in December's disturbing Westpac Consumer Sentiment index

The Westpac-Melbourne Institute Consumer Sentiment Index has fallen 5.7% in the latest December release. 

"This is a very disturbing result," its chief economist Bill Evans said.

The Index is now at its lowest level since August 2011 and prior to that you have to go all the way back May 2009 to see a period when the Index printed consistently below today’s level, he advised.

"Optimism around the housing market has evaporated," he said.

The index tracking assessments of ‘time to buy a dwelling’ fell 10.8% and is now down 19.3% over the year to the weakest level since November 2010.

"Consistent with that shift in sentiment, the outlook for house prices has also deteriorated sharply," Evans said.

"The Westpac-Melbourne Institute House Price Expectations Index fell 8.3% to be down 22.5% over the year, though more consumers still expect house prices to rise than fall."

But respondents have become more risk averse in their preferences for their savings.

"The proportion of respondents nominating ‘bank deposits’ as the wisest place for savings increased from 34.3% in September to 37.0% in December.

"That is the third highest proportion of respondents favouring bank deposits since 1979.

"Those preferring to pay down debt jumped from 13.7% to 17.6% while the proportion favouring real estate fell from 25.7% to 20.0%."

Evans noted in conclusion that respondents had sharply lowered their assessments of the economic outlook and their spending intentions.

"They remain extremely nervous about job security while adopting a more cautious attitude towards both their finances and the outlook for housing."

Last week, following the release of the national accounts, Westpac revised its interest rate forecast.

It now expects the RBA board to approve a 0.25% cut in the cash rate at its February meeting with a further 0.25% cut in March.

"The messages from this survey are certainly consistent with the assessment that the Australian economy needs even lower rates," Evans added.