Consumer Sentiment and Housing in Oz Fall

Consumer sentiment in Ozzie Land has fallen following the Reserve Bank of Australia’s (RBA) decisions in February and March to keep the official interest rate on hold, a survey shows. Many consumers are worried about mortgage rates and other adjustable rates, as banks are raising interest rates regardless of the moves by the central bank.

Home purchases have declined also, as both real estate investors and private buyers have moved from the market after the expectations were dashed.

The Westpac Consumer Sentiment Index fell by 5.0 per cent to 96.1 index points in March, from 101.1 points in February. Westpac chief economist Bill Evans said the fall meant pessimism now outweighed optimism among consumers.

He said the index was now below its October 2011 level.

That was before the RBA cut the official interest rate by 25 basis points in November and, by the same amount, in December. The cash rate has remained at 4.25 per cent since the December move. Mr Evans said the rate hold had hurt consumer confidence.

“With the two previous rate cuts, in November and December, being passed on in full by the banks, it is reasonable to assume that many borrowers expected a further cut in the mortgage rate of 0.25 per cent.ā€¯Instead, mortgage rates were actually increased in the following week with banks raising mortgage rates by an average of 0.10 per cent.

“It is likely that this reversal has impacted confidence.”

All five components of the survey fell this month, with the sub index tracking how consumers view the state of their family finances down 8.6%. The outlook for family finances over the next 12 months fell 4.5 per cent while the sub index covering economic conditions over the next five years fell 6.1 per cent.

Housing prices in Australia rose at the end of last year, as real estate investors moved heavily into the market as interest rates were reduced twice. The demand pushed up prices, which has not fallen, since the investors have left the markets, accounting for the drop in housing sales.

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