Consumer sentiment reverses towards buying property: Westpac-Melbourne Institute index

A key indicator of expectations for the housing market has revealed consumer attitudes towards buying a property improved from May to June, reversing a six-month trend of declining sentiment.

The ‘Time to buy a dwelling’ component of the Westpac-Melbourne Institute Consumer Sentiment Index rose by 11.4% from May to June, indicating more people thought it was a good time to get into the market.

The rise was the first time the index had improved since November 2013.

Westpac senior economist Matthew Hassan said the rebound was a positive sign but the improvement was tempered by a significant drop in expectations for house prices.

House price expectations fell 11.1% in June, compounding a 9.8% drop in May.

“While those expecting house prices to rise over the next 12 months still outnumbered those expecting declines, nearly a third of respondents now expect prices to be unchanged,” Hassan said.

The ‘Time to buy a dwelling’ index, with a reading of 121.2 in June, is still lower than the long-term average of 123.4. The index dipped below the long term average value in February 2014 for the first time since August 2012.

Broader sentiment stabilised after a sharp fall following the federal budget in May, with about three quarters of people surveyed recalling bad news on the budget and taxation, the highest proportion since the survey was started in the mid-1970s.

At 93.2, the general consumer sentiment index was down 8.8% compared with the same time last year, and well below the neutral 100 point level.

Across all measures of sentiment, including those concerning current and future family finances and the economy, the index was lower than a year previously.

Hassan said based on the weakness of the index, Westpac’s view was that the case for higher interest rates would not be strong enough until the middle of 2015 at the earliest.