Home buyer sentiment falls sharply in July: Westpac index
The Westpac 'time to buy a dwelling' sub-index - an indicator of housing investment and buying sentiment - fell sharply in July.
Westpac records an 8.4% drop in this sub-index compared with the overall consumer confidence index, which was flat (down 0.1%) in July and just favouring optimists with a reading of 102.1.
The time to buy a dwelling sub-index fell from 143.3 in June to 131.4 in July.
Despite the drop in July, the time to buy a dwelling index is still at elevated levels overall with optimists significantly outnumbering pessimists.
The graph (below) prepared by ANZ shows that sentiment about the property market has been rising since around the time the RBA starting cutting the cash rate in November 2011.
It also shows that the time to buy a dwelling sub-index tracks demand for new housing with the orange line showing residential building approvals in trend terms.
It shows a great deal of volatility in sentiment about buying property, but that the overall trend is upwards and that the index remains at elevated levels.
Westpac senior economist Matthew Hassan notes that the monthly decline “highlight the air of fragility around consumer sentiment.”
A more pessimistic outlook on family finance among the 1,200 survey respondents may have contributed to weaker property market sentiment in July with the sub-index tracking assessments of ‘family finances versus a year ago’ falling 5.6% to be back near recent lows.
“The downgrade in consumers’ assessments of their finances highlights the fragility of sentiment. It is also somewhat concerning given that these components tend to be better predictors of shifts in actual spending,” says Hassan.
Hassan talks of “powerful cross-currents” underlying the stable overall consumer confidence result.
While family finance sentiment has fallen, the outlook for the economy improved with the sub-index tracking consumers’ expectations for economic conditions over the next five years "surging 9.2% to be well above the average level recorded over the last two years”.
“Pinpointing the exact drivers of these shifts is difficult. The improved view on economic prospects for example may reflect shifting expectations for the US economy that have become more visible with US Fed now contemplating ‘tapering’ its quantitative easing policy stimulus," says Hassan.
“It may also reflect clearer signs of an upturn in parts of the local economy, the housing sector in particular. The sharp fall in the Australian dollar may also have played a part.
“The currency has gone from 104¢ US to 91.3¢ US over the last three months and although this would ordinarily be a negative for sentiment, the decline may be viewed differently given the currency’s high starting point and the difficulties this has presented for ‘trade-exposed’ parts of the economy."
ANZ says the Westpac figures suggest that household consumption growth will remain "relatively subdued, in line with our forecasts, after moderating since mid 2012".