Consumers believe prices will rise and now a good time to buy

Consumers believe property prices will rise and say now is a good time to buy, despite expectations of higher interest rates, a sentiment survey has revealed.

The August reading of the Westpac-Melbourne Institute House Price Expectations Index was up 7.6% compared with the month before and 20.6% higher since the federal budget in May, indicating Australians have become more confident of house price gains.

The index tracking whether now was a good time to buy property also jumped by 9.7% in the month to be 12.1% above the reading following the budget.

The results mirror a general rise in consumer confidence revealed in the survey, although Westpac's Chief Economist, Bill Evans noted sentiment generally is still 10.8% below its recent peak following the federal election.

The improvement in confidence levels comes despite an expectation of mortgage interest rate rises.

“The August survey found 63% of consumers expect mortgage rates to be higher in 12 months time, with 28% predicting no change and just 9% expecting rates to decline,” Evans said.

Interest rate experts surveyed by Finder.com.au ahead of the Reserve Bank of Australia’s last decision to keep interest rates level unanimously agreed the next cash rate move would be up.

Experts from Commonwealth Bank and Urbis predicted the cash rate would rise by the end of this year, while the others forecast rises in 2015.

Seven of the economists surveyed expected a rate rise in the first half of next year, six thought rates would rise in the second half and three did not give more specific predictions.

Financial markets are still expecting rates to be stable in the short term, although they are pricing in a small chance of rate cuts. The Australian Securities Exchange’s RBA Rate Indicator was suggesting the market believes there is a 96% chance interest rates will remain on hold at the next RBA decision in September, and a 4% chance of an interest rate cut to 2.25%.