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Real estate sentiment at 44-year low

Real estate sentiment at 44-year low

The Westpac/Melbourne Institute survey of consumer sentiment rose by 2.5 per cent to a 4-month high of 97.9 in September.

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13.09.2017 04:01 PM

Real estate sentiment at 44-year low

Consumer Confidence

Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment rose by 2.5 per cent to a 4-month high of 97.9 in September. The confidence index is down 4.4 per cent on a year ago. A reading below 100 denotes pessimism.

Wisest places for savings: The monthly consumer confidence survey includes quarterly data on the wisest places for savings. The wisest place selected was “Banks” (29.3 per cent of respondents).

Real estate out of favour: “Real Estate” was selected as the wisest place for savings by just 10.5 per cent of respondents – the lowest reading in 44 years. The consumer confidence figures have implications for retailers and other consumer-focussed businesses.

What does it all mean?

• Australia has a record economic expansion, the longest expansion by a developed nation. But Aussie consumers still aren’t feeling the love. While consumer sentiment lifted in September, the reading is still in the pessimistic end of the spectrum. Consumers are adjusting to the new reality of 2 per cent wage growth, rather than 4 per cent annual growth. Still, household prices are growing by just 1.4 per cent. And many goods and services are the most affordable they have ever been. But consumers are fixated on low wage growth and the rising share that bills like gas and electricity bills are taking on the household budget.

• In the survey period consumer spirits would also have been dampened by news of a hydrogen bomb test in North Korea and the hurricanes bearing down on southern US states. The good news is that these issues didn’t significantly spook consumers.

• Aussies are growing cold on real estate investments. Putting money in the bank or paying down debt are still regarded the wisest places for new savings. And shares have narrowed the gap with real estate. A less frothy real estate sector would be very much embraced by the Reserve Bank.

What do the figures show?

• The Westpac/Melbourne Institute survey of consumer sentiment rose by 2.5 per cent to a 4-month high of 97.9 in September. The confidence index is down 4.4 per cent on a year ago. A reading below 100 denotes pessimism.

• The current conditions index rose by 3.7 per cent while the expectations index rose by 1.8 per cent.

• Four of the components of the index rose in September:

The estimate of family finances compared with a year ago was up by 6.1 per cent;

The estimate of family finances over the next year was down by 2.1 per cent;

Economic conditions over the next 12 months was up by 2.7 per cent;

Economic conditions over the next 5 years was up by 5.2 per cent;

The measure on whether it was a good time to buy a major household item was up by 2.1 per cent.

• Housing outlook: A good time to buy a dwelling? The index was up 0.7 per cent in September after rising by 0.9 per cent in August and rising 3.1 per cent in July.

Wisest place for savings:

• Contained in the Westpac/Melbourne Institute survey of consumer confidence was a quarterly question on the wisest places for savings. Most people favoured putting new savings in the bank as the wisest place for savings (29.3 per cent of respondents). Next highest was “Pay Debt” (23.5 per cent) from Real Estate (10.5 per cent), Shares (8.9 per cent), “Don’t Know” (6.3 per cent); “Spend it” (5.7 per cent) and Superannuation (5.5 per cent).

• In the September quarter the reading for “Real Estate” was the lowest in 44 years of records at 10.5 per cent.

What is the importance of the economic data?

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.

What are the implications for interest rates and investors?

• CommSec still sees no change to interest rates in the foreseeable future. The economy is expanding, business conditions are at decade highs but inflation is well contained. And, based on today’s data, the RBA needs to keep a watch on a cooling property market.

Originally published by Craig James, Chief Economist, CommSec
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