Weakness in housing sentiment: Westpac's Bill Evans
GUEST OBSERVER
‘Surprising’ survey results are often the most interesting. That was undoubtedly the case with the Nov Westpac–Melbourne Institute Consumer Sentiment survey.
Despite what can be viewed as a de facto tightening in financial conditions following moves by banks to increase mortgage rates, sentiment posted a solid gain in the month to climb back over the 100 level for only the third time in the last 21 months.
Clearly there were some powerful offsetting positives at work this month. These all centred on the outlook for the economy, with the ‘economic outlook’ sub-indexes up over 20% in the last 2mths on a combined basis.
The circumstantial evidence strongly implicates the leadership change in mid Sep as a key positive catalyst. Disentangling the various influences on consumer sentiment can often be very difficult but this month we have a closer look at how views on the ‘economic outlook, next 5yrs’ relates to sentiment more generally and responses to opinion polls. The analysis points to recent gains being due to a mix of improved polling, a ‘honeymoon’ effect following leadership changes and a more general improvement in sentiment.
Of course, it remains to be seen how well this resurgence in economic confidence is sustained. And views on the economy tend to have less influence on actual spending decisions than those around family finances and buyer sentiment.
On this front, the Nov survey was a more mixed update. On the more sober side, our preferred gauges of demand momentum remain subdued in line with the soft spending seen through much of 2015. Sentiment around housing also remains weak with assessments of ‘time to buy a dwelling’ pointing to a material correction and price expectations cooling rapidly.
On the more positive side, responses to direct questions about planned Christmas spending were the most upbeat we have seen since the GFC. The Westpac–Melbourne Institute Unemployment Expectations Index also sustained most of last month’s big improvement, suggesting a genuine breakout from the intense pessimism around job security that has hung over the consumer since 2011.
On balance, sentiment is starting to look more conducive to a lift in spending but there are clearly still some weaknesses.
Bill Evans is chief economist of Westpac.