The outlook for Australia's housing market is deteriorating, and it's weighing on consumer confidence

Westpac’s surprise decision to lift variable mortgage rates for its home loan customers from November 20, along with further negative news flow around slowing momentum in Australia’s residential property market, weighed on Australian household sentiment last week with the latest ANZ-Roy Morgan consumer confidence index slipping 2.0% to 113.3.

While the decline saw sentiment retrace around half the 5.1% bounce registered in the previous week, the index remains above its long-run series average of 112.7.

In a blow to the outlook for household consumption, something the RBA and Australian Treasury are pinning their hopes on to help bolster flagging economic growth, the question on whether now is a “good time to buy a major household item” continued to weaken, falling by a further 3.1%, leaving the subindex some 7.9% below its long run average.

The full survey breakdown can be found below.

  • Financial situation compared to a year ago 108.3 (-0.5%)
  • Financial situation next year 125.0 (-3.8%)
  • Economic conditions next year 99.1 (-0.5%)
  • Economic conditions next five years 111.1 (-1.2%)
  • Time to buy a major household item 123.2 (-3.1%)

According to Felicity Emmett, co-head of Australian economics at ANZ, sentiment towards the housing market is weakening, something that may weigh on consumer confidence, economic growth and employment in the period ahead.

“The fall in consumer confidence last week was likely driven by deteriorating sentiment about the outlook for the housing market. Higher mortgage rates and falling auction clearance rates are pointing to weaker growth in house prices. The latest ANZ-Property Council Survey revealed a decline in property sector confidence with falls expected in residential prices and construction. A softer housing market is likely to weigh on consumer confidence, economic growth and employment.

Housing has been a key pillar of growth this year, and without that support in 2016, we expect the economy will need further stimulus in the form of another 50bps of rate cuts from the RBA. While the focus is turning to the November RBA board meeting, we continue to expect the Bank to wait until February to change policy settings.”

As the chart below shows, based on historic relationships, falling auction clearance rates points to a moderation in Australian house price growth in 2016.

While sentiment towards the housing market has weakened in recent months, particularly in Sydney, at the same time most labour market indicators have been strengthening.

Given established home owners have benefitted from strong house price growth in recent years, many will be hoping that improved labour market conditions, along with stable-to-modestly higher house prices in the future, may be enough to see household sentiment remain at levels strong enough levels to sustain growth in household consumption in the quarters ahead.

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