Volatility reflecting mixed conditions and uncertainty around policies affecting housing markets: Westpac-Melbourne Institute
The Westpac–Melbourne Institute Consumer Sentiment Index dipped 2.2 percent from 101.3 in Feb to 99.1 in March.
The softer read reflected weaker reads on ‘family finances vs a year ago’ and ‘time to buy a major item’ partially offset by improved expectations for the economy.
State divergences remain a strong theme across the survey detail with the ‘lukewarm’ national result reflecting a mix of much weaker reads across the ‘mining’ states and considerably stronger sentiment across the other major states.
Responses to additional questions on news recall showed lower recall on most topics compared to Dec – particularly news on ‘international conditions’ – with news assessed as less unfavourable as well though still predominantly negative overall.
Updates on the ‘wisest place for savings’ question show a sharp rise in risk aversion with a big drop in the proportion nominating ‘real estate’ and a corresponding rise in those favouring ‘deposits’ and ‘pay down debt’. The shift appears to stem from a combination of increased market volatility, unfavourable media coverage on property markets and potential changes to tax policy.
The mix resulted in a 20pt jump in the Westpac Risk Aversion Index to its highest level since Mar 2013.
CSI, our modified sentiment indicator that we favour as a guide to actual spending, posted a heavy 5.7 percent fall in Mar to be down 8 percent over Q1 as a whole. The Index suggests spending will lose momentum over the first half of 2016.
The sub-index on ‘time to buy a major item’ registered a sharp 6.6 percent fall in Mar to be 12pts below average. The Q4 national accounts suggest the pace of durables spending has already softened with the sub-index suggesting more subdued soft growth in early 2016.
The ‘time to buy a dwelling’ index increased 5.4 percent from 99.3 in Feb to 104.7 in Mar and continues to show signs of settling just above the 100 level. Assessments in NSW have improved from very weak levels.
The Westpac-Melbourne Institute Consumer House Price Expectations Index also rebounded 9.8 percent in Mar to be just 5pts below its 10yr average.
Expectations continue to show increased volatility likely reflecting mixed actual conditions and uncertainty around the outlook for key policies affecting housing markets.
The Westpac-Melbourne Institute Unemployment Expectations Index edged up 1.3 percent in Mar, indicating a slightly poorer outlook for unemployment. The Index still points to an improvement in job loss fears compared to 2014 and most of 2015. However the tentative signs of a renewed deterioration in recent months bears watching closely.
As is often the case, ‘the devil was in the detail’ with the March Westpac–Melbourne Institute Consumer Sentiment survey.
On the surface, the headline Index was just a touch lower in the month, essentially holding in line with average readings over the last 6mths. Likewise, the Westpac–Melbourne Institute Unemployment Expectations Index also deteriorated only slightly.
The detail however shows a much richer pattern of strength and weakness, and a more nuanced account of the factors currently influencing the consumer mood.
The dip in sentiment was driven by a sharp fall in assessments of ‘family finances vs a year ago’, and accompanied by a sharp rise in risk aversion indicated by responses to additional questions on the ‘wisest place for savings’.
Although both moves may prove to be temporary, these components have had a major bearing on consumers’ spending and savings decisions in the past. Indeed, this aspect of the survey points to a softer near term demand environment, particularly when compared to what now looks to have been a strong finish to 2015.
The detail around housing showed a more positive but still mixed situation.
Views on ‘time to buy a dwelling’ and house price expectations both look to have pulled out of last year’s abrupt slide at levels that are soft but not so soft as to suggest a ‘hard landing’ is on the way.
The main qualifier here is around investor housing with the survey showing a sharp drop in the proportion of consumers nominating real estate as the ‘wisest place for savings’. One of the main drivers appears to be uncertainty around potential changes to policies affecting residential investment – something that looks set to remain a factor through to the Federal election.
On the labour market, the main mystery still concerns the disconnect between consumer views and improvements now clearly being shown across a wide range of market metrics. While these have shown a marginal softening in recent months, consumers never really bought into 2015’s improvement.
We have several ideas as to why that may be but these are yet to be confirmed. In the meantime, the anxious consumer view on jobs remains a clear restraint on demand.
The consumer mood: bogged down
The Westpac-Melbourne Institute Index of Consumer Sentiment dipped 2.2 percent in Mar from 101.3 in Feb to 99.1. The Index is back to around its average reading over the last 6mths.
The index continues to hold on to most of the gains seen since last year’s leadership change – it surged 8.3 percent through Oct-Nov and has only slipped back 2.5 percent from that high although technically we are now slightly back in the region where pessimists outnumber optimists.
Financial markets have maintained significant volatility since the last survey while finishing the month on an encouraging high.
Responses to additional questions on ‘news recall’ indicate that consumers were generally less focussed on ‘international conditions’ than in Dec, recall on this topic falling from 20 percent to 15.5% in Mar, although perceptions remained highly unfavourable.
The highest levels of news recall were for items on ‘budget and taxation’ (37.1 percent) and ‘economic conditions’ (36.7 percent). Perceptions of both topics were less unfavourable in Mar than in Dec. Respondents registered low recall rates on news on ‘interest rates’, ‘employment’ and ‘inflation’ although again perceptions were significantly less unfavourable than in Dec.
Three of the five component indexes fell in Mar. Notably, the sub-index on ‘finances vs a year ago’ fell 8.2 percent. The RBA has singled out this component as providing a useful guide to actual spending. As such, it would be of some concern that, having failed to lift following last year’s leadership change, the sub-index is down 5.9%yr. That said, the prudent approach to the sharp move in March is to assess the degree to which it is sustained in coming months.
The ‘finances, next 12mths’ sub-index edged up 0.2 percent. Views on the economy were more mixed, the ‘economy, next 12mths’ sub-index up 8.2 percent, the ‘economy, next 5yrs’ sub-index down 2.5 percent.
― The ‘time to buy a major item’ sub-index was on the weak side, falling 6.6 percent to be down 2.5 percent yr.
State divergences remain a strong theme across the survey detail. Indeed the ‘lukewarm’ results for sentiment overall are partly a matter of arithmetic: the ‘mining states’ account for 31% of consumers in Australia and while-ever sentiment across this group is stuck around 90 it’s difficult to generate a ‘strong’ national result. An index reading in the 110+ range, for example, would require sentiment reads in NSW and Vic to be pushing towards 120 or more. Viewed this way, middling consumer sentiment reads may be as good as it gets in 2016.
Sentiment indicators: housing
The ‘time to buy a dwelling’ index increased 5.4 percent from 99.3 in Feb to 104.7 in Mar. After a sharp fall in 2015 H2, the national index continues to show signs of settling at a level just above 100. That puts it well below the long run average of 129 but above the lows seen during previous housing market corrections – these have seen sub-100 readings with sub-80 readings in major downturns.
Auction clearance rates continue to show a firm start to 2016 compared to what was a very weak finish to 2015. Although underlying volumes are low (down 20% on Sep levels and –2.3%yr), both Syd and Melb clearance rates have been around 67-68% level, allowing for seasonal fluctuations.
Sentiment indicators: house prices
The Westpac-Melbourne Institute Consumer House Price Expectations Index rebounded 9.8% in Mar to be 16.6% above its Dec low but still 18.4% below its year ago level. At 120.9, the index is less than 5pts shy of its 10yr average.
Just over 22 percent of consumers expect prices to decline in the year ahead, 33 percent expect no change, 38 percent expect gains of 0-10 percent and 6 percent expect 10%+ gains. State-wise, the main lift vs Feb was a more bullish view in NSW and a less pessimistic view in WA. That said, the state and sub-group detail continues to show volatile moves suggesting consumers may be struggling to get a firm handle on the price outlook.
This volatility may derive from the uncertain outlook for policies affecting investor activity and the uneven picture presented by various price measures. The most timely price gauge – the CoreLogic RP Data series – has shown clear signs of stabilising after a weak Q4 with prices likely to finish up close to 2 percent in Q1. Other less timely measures are still reflecting last year’s weakness but get equal coverage in the media.
Viewing all the elements of housing sentiment by state – price expectations, buyer sentiment and investor sentiment – conditions overall appear weakest in Qld & WA although by far the biggest deterioration vs a year ago is in NSW.
