Sentiment for houses rises but upturn in market unlikely: Westpac Redbook

Despite house buying sentiment tracking above levels last seen in 2002, the market will remain soft in spring due to unemployment concerns, according to Westpac economic and Red Book author Matthew Hassan. 

Hassan noted the 15.5% jump in the bank’s “time to buy” index in September – a component of its consumer sentiment survey – taking the index to its highest level since September 2009. 

“Somewhat incredibly the September reading is also the highest reading since March 2002 (excluding the 2008-09 period when mortgage rates were sub- 6% and generous first home buyer incentives were being rolled out),” he says.

“While this is positive heading into the spring selling season, we caution that it does not guarantee an upturn. 

“The index often says more about affordability than market prospects; that is, the September rise may have more to do with softer prices and shifting rate views. 

“A similar series for the US did not capture the extent of the slump there and has shown strong buyer sentiment since February 2009. US housing has yet to recover.”

To form a more accurate picture in Australia, Hassan says the index should be used in conjunction with unemployment expectations. 

According to the September Westpac–Melbourne Institute Consumer Sentiment Survey, unemployment expectations rose 8.5% in September following on from a 2% gain in August, suggesting households are observing a softer jobs market and are becoming increasingly insecure in their jobs. 

Taken together, Hassan says these indicators point to a net softening in demand conditions rather than a pick-up. 

This is despite fewer consumers now likely to be expecting an interest rate rise over the coming months. 

Westpac did not question consumers in September on their mortgage rate expectations  (in August, 73% of consumers said they expected mortgage rates to rise in the next 12 months with 29% picking an increase of over 1%) but Hassan says it would be reasonable to assume “considerably fewer respondents would now expect higher rates over the year ahead”. 

Despite this, consumers remain risk averse, with Westpac forecasting a continuation of the high levels of household savings that have been a feature of the last few years. 

The bank forecasts the savings ratio to stay in the current range of 10.5% to 11.7% of national over the next 12 months.