Time to buy dwelling rebounds, but still cool: Westpac consumer sentiment

The consumer sentiment on housing improved in the latest Westpac Melbourne Institute Index.

Westpac’s chief economist, Bill Evans, noted the index tracing ‘time to buy a dwelling’ increased by 9.4% following the 10.8% fall in the index in December.

"The index is still 11.4% below its one year ago level," he added.

"This reversal of the December result removes some downside risk to the outlook for housing demand but does not change the more general picture of cooling sentiment towards housing.

“We also saw a strong rebound in house price expectations.

"The Westpac Melbourne Institute House Price Expectations index increased by 8.6% following an 8.3% fall in December.

"Consistent with the signal from the 'time to buy' index, this index is also indicating that confidence toward housing has cooled.

"This index is still down by 13.9% compared to a year ago.

Evans, noting the Reserve Bank Board next meets on 3 February, says markets are giving little chance to the prospects of a rate cut at that meeting.

"On 4 December last year Westpac forecast that the Bank would cut rates by 25 basic points in both February and March. At that time markets were pricing in the prospect of one rate cut by end 2015.

"They are now expecting close to two cuts by end 2015, in line with Westpac’s view but at a much slower pace.

“We expect that by the time of the release of the inflation report next week the case for a rate cut will have been made.

"The prospect of moving in February should be attractive to the Bank.

"A February decision can be fully explained in the Statement on Monetary Policy released three days after the decision, including the opportunity to update inflation forecasts."

The overall Westpac Melbourne Institute Index of Consumer Sentiment increased by 2.4% in January from 91.1 in December to 93.2 in January.

“However, when assessed in the context of the sharp 5.7% fall in the Index in December it is not a particularly strong result," said Evans.

"The Index is still down by 9.7% on a year ago and really only back at the levels we saw in the immediate aftermath of the federal budget when the Index had tumbled by 6.8%.

"At 93.2 the Index level indicates pessimists still outnumber optimists by a significant majority."