Lower consumer confidence will dampen the housing market- Tim Lawless

The latest consumer sentiment data arrived yesterday from Westpac and the Melbourne Institute. The reading of consumer confidence fell for the fourth consecutive month and moved below the 100 mark where optimists and pessimists are equally balanced.

With a reading of 99.5, the index is virtually at a neutral setting but more than 10 index points below the recent peak of 110.6 recorded in September last year.

Consumer sentiment

The index moves around a lot from month to month, so the trend is generally more important than the monthly reading, however we have seen the index move lower over five of the past six months which indicates a softening consumer mind set.

Consumer confidence and housing market conditions are highly correlated. No surprises there… if a consumer is lacking confidence in their household finances they aren’t going to be as prepared to make a high commitment decision such as purchasing a property.

If the consumer confidence index continues to trend around the 100 mark or lower we can probably expect the exuberant housing market conditions to taper off, despite the low interest rate environment.

The two graphs below demonstrate the correlation; when consumers are confident market demand rises, pushing values higher and vice versa.

Consumer sentiment v dwelling sales

Consumer sentiment v dwelling values

Even though confidence levels have eased, consumers are still viewing the housing market as a ‘wise’ place for their savings. One of the questions asked in the Consumer Sentiment survey is ‘where is the wisest place for savings’.

Just over a quarter of respondents think that real estate is the wisest place for savings, the second most popular option after ‘financial institution’ (33.9%).

There are a few factors that are likely denting confidence at the moment. The early declines in the index were potentially a natural comedown after the post-election improvement, however more recently the lower level of sentiment is probably more attributable to the weaker jobs market.

The unemployment rate is rising, hitting its highest level since 2003 in January at 6.0%. The pain in the automotive sector is likely causing further discomfort, as are other high profile job shedding situations such as Qantas.

As demonstrated by the Westpac-Melbourne Institute Index of Unemployment expectations, consumers haven’t been this worried about job security since the depths of the GFC.

Unemployment expectations

Consumer confidence can be fickle, and we may see the consumer mind set bounce back to a more optimistic position if the jobless rate stabilises and economic data flows improve, but if the current levels of low confidence persist it may be the case the housing transaction numbers start to trend lower as consumers batten down the hatches.


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Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit

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