Home buying sentiment surges to highest level in three years: Westpac Melbourne Institute Index

Home buying sentiment surged 9.6% in October to its highest level in three years, according to the latest Westpac Melbourne Institute Index of Consumer Sentiment.

Westpac chief economist Bill Evans called this the “most encouraging result” from an overall disappointing reading of consumer sentiment in October.

The overall index increased by just 1 percentage point in October from 98.2 in September to 99.2 in October – the eighth consecutive month it has been below 100, indicating that pessimists outnumber optimists.

However, home-buying sentiment as measured by the "time to buy a dwelling" sub-index is now up 17.9% over the past two months and at its highest level since September 2009 – “the last period when the sentiment overall was surging strongly”.

“This message is consistent with other recent evidence of firming auction clearance rates. The response of the housing market to the recent rate cuts will be very important to watch,” says Evans.

The October survey of 1,200 was conducted in the week from October 1 to October 7, 2012. The RBA cut the cash rate by 25 basis points on October 2.

Evans called the overall result “disappointing”.

“There were a number of reasons to have expected the sentiment index to have increased by more than only 1%.

“Firstly, and most importantly, the Reserve Bank cut its overnight cash rate by 0.25 percentage points from 3.5% to 3.25%.

“Unlike some moves by the Bank which are fully expected by the media and therefore may not have a marked impact on confidence this move was not widely expected and therefore should have registered as a ‘pleasant surprise’ for respondents.

“Instead we saw the sentiment of those folks with a mortgage hardly move with a minuscule 0.6% increase.

“Of course a likely complication was the response of the major banks, most of which only announced their mortgage rate reductions on October 5 – five days into the seven day sample period – with reductions ranging from 0.18% to 0.20%,” says Evans.

He added that it remains of some concern that the index is "still significantly below its level of last November following the first 25-basis-point cut in the overnight cash rate.

"Since that time the Reserve Bank has cut the overnight rate by a further 125 basis points but the index is now 4.1% lower."