If you’ve been following my property investment blogs you’ll know I consider consumer confidence an important leading indicator of what’s going to happen to our real esate markets.
When confidence is high, people buy property, when it’s not – they hold back.
So it was disappointing to see that, according to the latest Westpac Melbourne Institute Index of Consumer Sentiment, sentiment fell 4.1% in December in the week the Reserve Bank cut the cash rate to 3%.
This nearly reverses the 5.2% increase in November with the index now 3.2% below its November 2011 level meaning there has really been no overall improvement in consumer sentiment despite the cash rate falling 175 basis points over the past 13 months.
The only respondents to the Westpac survey to react positively to the rate cut were – not surprisingly – mortgage holders, where sentiment rose 4.4%.
The survey of 1,200 Australians was conducted from December 3 to December 9 December. This was the same week the RBA cut the cash rate (December 4) and all the major banks (apart from ANZ) announced they would pass on 0.02%.
Overall, the index fell from 104.3 in November to 100.0 in December.
In the home ownership categories, those that own their homes outright were the most pessimistic with a 10.9% slump in this sub-index while renter sentiment fell by 9.1%.
Westpac chief economist Bill Evans called the December findings of the survey “a very surprising result”.
“When we saw the 5.2% increase in the Index in November, which came despite the Reserve Bank surprising by holding rates steady, it appeared that sentiment was finally starting to respond to the accumulated series of rate cuts since November last year.
“With that in mind it was therefore reasonable to expect that the Index would respond quite positively to the rate cut the Reserve Bank delivered last week.
“Instead the Index fell back to near its October level and is now 3.2% below its November 2011 level,” he said.
Evans attributed the slump in confidence to consumers being influenced by reports in the media about economic conditions.
“In this survey we also receive a measure of the major news categories which influenced respondents and how each category was assessed.
“The news items which had the largest impact were around economic conditions. An impressive 60% of respondents recalled news items on the economy.
“Next most prominent were interest rates (28.9% of respondents); budget and taxation (20.7%); international economic conditions (20.6%); inflation (13.9%); and employment (11.9%),” he says.
Clearly it would have been better to finish the year on a high note. Let’s see what 2013 brings. I’m sure it will be another “interesting” year.
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