The release last week of housing finance data suggested that the RBA cut might have just lit a fire underneath Australian housing.
This week the release of Westpac’s Redbook confirms animal spirits are alive and well – if only in the housing market.
The Redbook takes a deep dive into the responses to Westpac’s monthly Consumer Sentiment Survey. It gives a more detailed analysis into what’s behind the answers and specific questions that are asked.
On housing finance, the Redbook showed:
The RBA’s Feb rate cut gave a strong boost to consumers’ confidence in the housing market. The index tracking views on ‘time to buy a dwelling’ jumped 9.7%, hitting its highest level since Feb 2014. The turnaround since Dec is extraordinary with the sub-index swinging 20pts from a very weak starting point to be marginally above its long run average.
That in turn suggests housing markets should see renewed momentum. Our model of housing finance approvals based on responses to ‘time to buy’ and unemployment expectations is now pointing to an acceleration in trend growth to the 5-10% yr range by year end.
That’s a good backdrop for the performance of the listed banks.
But the outlook for house prices which will most worry an RBA clearly warn that the Sydney house price boom doesn’t worsen or spread.
The Redbook showed that “consumers’ house price expectations were also boosted by the RBA’s interest rate cut” with the house price expectation index up 6.9% to its highest level since September 2014.
The similarity with August 2013 will worry the RBA.
The 2015 bounce in price expectations is similar to the 9.4% jump that followed the RBA’s last interest rate cut in Aug 2013. That surge essentially marked the start of the current housing upswing which has seen strong growth in activity and prices over the last year and a half.
The question for the economy, business and the RBA is how consumers now act and what their reactions to increased house prices will be.
In the post-GFC world, Australian consumers have been saving not spending.
Will this time be different?