Australians reckon it's not a great time to buy a house

Photo by Alexander Koerner/Getty Images

Most Australians think that mortgage rates will increase in the next year, and that appears to be discouraging people from buying property at present.

That’s the collective view communicated in the latest Westpac-MI consumer sentiment survey for January with respondents now clearly of the view that mortgage rates are likely to rise in the year ahead.

According to Westpac, 60% of respondents said they expect rates to be higher in 12 months, well above the 37% who held that view just six months ago.

Of the remaining 40% of responses, 35% expect rates to be steady while just 5% expect further rate cuts.

The survey just happened to coincide with a decision from the Commonwealth Bank, Australia’s largest home loan lender, to increase mortgage rates on interest only investor loans from April 3.

Matthew Hassan, senior economist at Westpac, said that shift in sentiment towards the outlook for interest rates appears to be weighing on demand, at least among those who participated in the survey.

“Concerns about potential interest rate increases may have impacted sentiment towards housing,” said Hassan following the release of the January report.

“The ‘time to buy a dwelling’ index fell sharply, declining 7.8%. The index is now at its lowest level since May 2010 when the RBA was near the end of its last tightening cycle.”

“Victoria, Queensland and Western Australia all recorded 10% plus declines in the month although the New South Wales index remains the weakest across the states.”

Source: Westpac

A 7.8% decline, leaving sentiment as to whether now is a good time to buy at a more than six-year low.

It’s a fairly significant and broad-based drop, something Hassan says “points to a shaky start to the new year for housing markets”.

However, despite that pessimism, most people still expect prices to rise, particularly in New South Wales and Victoria, the two states which saw prices in the capitals surge by more than 13% in 2016, according to data from CoreLogic.

“Over 64% of consumers expect price gains over the next 12 months compared to just 39% this time last year,” says Hassan.

“In New South Wales and Victoria, where market conditions and price gains have been strongest, 70–75% of consumers expect prices to rise further in 2017 with one in ten expecting double digit price growth.”

It’s all a little confusing, and contradictory, one has to say.

On one hand most Australians think it’s a pretty bad time to be buying, at least compared to recent years, while at the same time most expect prices to continue to ratchet higher in the year ahead.

Perhaps it’s those who think that it’s still a good time to be buying who have been active in the market recently, because the data — whether measures in new lending or prices — says that there’s still plenty of demand out there.

In December, new home loan lending jumped to $33.4 billion, according to the ABS, the highest monthly total on record.

And, according to recent auction clearance rates and home price data from CoreLogic, clearance rates in Sydney and Melbourne remained elevated, corresponding with continued strong growth in dwelling prices in these cities.

So while people are indicating that they think now is not a great time to buy, that’s yet to be seen in the hard housing data.

As it lags the Westpac survey by up to two months, it will be interesting to see whether the deterioration seen in the February survey is replicated in upcoming housing finance, credit, price and auction data.

Something to keep an eye on in the months ahead.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at