Housing market correction impact on consumer sentiment small so far: Matthew Hassan

EXPERT OBSERVATION

Consumer sentiment has tracked back to neutral as the earlier tax cut boost wanes and a variety of negatives impact. The housing market correction is in the mix but the detail suggests the impact on sentiment has been small so far.

The Westpac Melbourne Institute Index of Consumer Sentiment has weakened over the last 3 months, falling 4.2% and retracing all of the gains seen through the middle of the year.

At 100.5, the Index is now broadly unchanged on a year ago and only just above the 100 line, indicating a near even mix of optimists and pessimists.

A waning boost from the income tax cuts announced in May, renewed political instability, mortgage rate increases, further declines in house prices, rising petrol prices and unsettled financial market conditions all look to have contributed to the softer reads. Indeed, given the range of negatives, the pull back in sentiment has arguably been mild.

There is some evidence that positives around economic growth, the labour market and more balanced conditions across states have provided some underlying supports.

A key area of interest is the extent to which the house price correction is having spillover effects on the consumer. Assessments of family finances remain a notable weak spot.

Concerns around interest rates and house prices are both apparent – sentiment amongst households with a mortgage falling 6.4% over Sep-Oct.

That said, the more pronounced house price corrections in Sydney and Melbourne do not appear to be weighing more heavily on sentiment in these regions, at least not yet.

Matthew Hassan is a Senior Economist for Westpac.