Consumer sentiment is surging, confidence in the housing market is booming, and the number of experts tipping a Melbourne Cup Day cash rate cut is increasing. Let’s look at why households and businesses are becoming increasingly optimistic.
Ahh, spring. It’s fair to say we love it around here.
Not only do we usually see an uptick in property market activity (houses always look much nicer in spring), but this year – in particular – we’re seeing consumers more upbeat about what lies ahead.
This can be seen in the latest Westpac-Melbourne Institute Index of Consumer Sentiment survey, which saw consumer sentiment increase by 11.9% to 105.0 in October (up from 93.8 in September).
“This is an extraordinary result,” says Westpac’s chief economist Bill Evans.
“The index has now lifted by 32% over the last two months to the highest level since July 2018.”
Confidence in the housing market is also high
One of the biggest takeaways from the latest consumer sentiment survey is that more and more people believe now is a good time to purchase property.
“Confidence in the housing market has boomed,” explains Mr Evans.
“The ‘time to buy a dwelling’ index increased 10.6% to its highest level since September 2019.”
House price expectation sentiments also rose strongly, up 31.5% to 117.3 (from 89.2), with all states registering impressive recoveries.
Why is consumer sentiment soaring?
While leaving the doom and gloom of a COVID winter behind and entering spring sure doesn’t hurt, it’s not the only reason for the uptick in consumer sentiment.
This latest survey came right off the back of the federal government’s October Federal Budget, which allocated a record amount of spending and support measures to businesses and households.
There’s also an increasing “expectation that the Reserve Bank (RBA) board is likely to further cut interest rates at its next meeting on November 3”, says Mr Evans.
In fact, according to financial market pricing, there’s now around a 75% chance that it will happen.
That’s because, while previous communications from the RBA indicated that the “effective lower bound” of its official cash rate was 0.25%, in recent weeks it’s changed its tune, hinting at a willingness to cut it to 0.10% on Melbourne Cup Day.
“Recently, we have detected a change in attitude (from the RBA) indicating more confidence that the plumbing of the financial system can operate effectively at an even lower set of policy rates,” says Mr Evans.
“With that in mind, and the commitment towards full employment and the target for inflation, there seems to be no reason for the board to delay its decision.”