Falls in consumer sentiment measurements will have repercussions for the housing market despite low interest rates, warns research analyst for RP Data Cameron Kusher.
In an analysis of the recently released May 2013 Westpac and Melbourne Institute’s Consumer Sentiment Index survey, Mr Kusher said current results suggested that consumer confidence remained fragile and would therefore be reflected in consumer spending habits.
The survey showed that consumer sentiment fell by seven per cent over the month, following a 5.1 per cent fall in April, which saw the index sitting at 97.6 points. This was the lowest reading since August last year and according to Mr Kusher, it was an indication of higher levels of pessimism.
“The Consumer Sentiment Index is inherently a volatile monthly measure,” he said. “Sentiment tends to react to the latest news and worldwide economic events.”
With the results confirming that consumer sentiment had eased over the past two months, RP Data anticipated that they were a sign that the economy was slowing down, particularly in retail and housing.
Mr Kusher said buyers wanting to purchase a home in the near future would be seeking to find more confidence in the economy, so they were secure in their ability to service debt levels.
Mr Kusher also investigated the annual change in capital city home values against the annual change in the six-month rolling average reading for consumer sentiment, where there had been a strong correlation between home values and sentiment.
“With the monthly consumer sentiment reading falling by 11.7 per cent since March 2013, we would expect the lower sentiment reading to have a dampering effect on dwelling growth value,” he said.
The consumer sentiment trend in Westpac and Melbourne Institute's Index also showed there was a strong correlation with housing market activity.
“Based on the recent decline in consumer sentiment, it can be expected that sales activity may also slow over the coming months,” Mr Kusher said.
“Of course, no one truly knows the future direction of the housing market but if recent trends are anything to go by it will be heavily influenced by consumer sentiment.
“The two months of weakness in data could easily be reversed over the coming months, however the volatility in consumer sentiment and global economic uncertainty is making consumers much more cautious.”