Mortgage holders face renewed caution amid shifting economic outlook
Australians are feeling less confident about their financial prospects, with consumer sentiment dropping to its lowest point in six months.
The latest Westpac-Melbourne Institute Consumer Sentiment Index dropped by 3.5% to 92.1, erasing gains made earlier in the year when rate cuts had briefly lifted optimism. The latest figure reflects a return to pessimism, though it remains above the weakest readings seen during the cost-of-living crisis.
The survey, conducted in early October, found that optimism about family finances and the broader economy has faded. The sub-index measuring expectations for family finances over the next year fell nearly 10% to 97.1, its lowest point in over a year. Current assessments of family finances also declined, suggesting that the positive effects of recent policy changes, including interest rate and tax cuts, may be diminishing.
“Consumers appear to have been rattled by recent updates on inflation,” said Matthew Hassan (pictured top), head of Australian macro-forecasting at Westpac. “Partial measures released over the last month suggest annual inflation has lifted back towards the top of the RBA’s 2-3% target range.
“This news, and signs of firmer consumer demand and a pick-up in housing markets, looks to have sparked renewed doubts about the path of interest rates, weighing on near-term expectations for family finances and the economy.”
Consumer views on the near-term economic outlook also weakened. The ‘economic outlook, next 12 months’ sub-index dropped by 2.5% to 89.9, the lowest reading in a year. However, expectations for the next five years were more stable, with a slight rise to 94, just above the long-term average.
Spending intentions remain subdued. The ‘time to buy a major item’ sub-index slipped 1.1% to 97.2, staying below its historical average. Despite some improvement over the past year, consumers appear cautious heading into the peak retail season.
Expectations for mortgage rates shifted notably during the survey period. The Mortgage Rate Expectations Index rose 15.6% to 101.7. There was significant variation in responses, with more hawkish views recorded before the Reserve Bank of Australia’s (RBA) decision to leave rates unchanged in September. Among those surveyed after the announcement, over two-thirds expected mortgage rates to remain steady or decrease in the next year, compared to 61% across the full sample.
Labour market concerns remain limited. The Unemployment Expectations Index declined 2.9% to 127.6, slightly below its long-run average, indicating that most consumers do not anticipate a significant rise in unemployment.
Homebuyer sentiment was largely unchanged, with the ‘time to buy a dwelling’ index edging up by 0.4% to 96.5. State-level data showed relatively positive sentiment in Victoria and a neutral outlook in New South Wales, while Queensland and Western Australia recorded more subdued and variable results. All states remain below their long-term averages.
In contrast, expectations for house prices continued to strengthen. The House Price Expectations Index increased by 2.1% to 171.9, a new 15-year high. More than three-quarters of respondents expect prices to rise over the next year, with the strongest sentiment in Queensland.
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