The Westpac-Melbourne Institute Index of Consumer Sentiment lifted by 2.5% to 107.7 in November from 105.0 in October.
There was a flat response amongst the own finance components with the ‘family finances, last 12 months’ subindex down 3.2% and the ‘family finances, next 12 months’ sub-index up 0.2%. This may be reflecting the scaling back of JobKeeper and JobSeeker since October, while the back dated tax cuts will not impact incomes until mid-November.
The ‘economy, next 12 months’ sub-index surged 8.4% although the ‘economy, next 5 years’ sub-index only rose 0.5%. The improvement in Victoria was notable – the 12 month view up 18.1% and 5 year view up 10.8%.
Prospects for further strength in sales of household goods received a boost with a 6.7% increase in the ‘time to buy a major item’ sub-index to its highest level since August last year. This will be a particularly welcome sign for Australia’s retailers heading into the critical Christmas high season.
The labour market remains the key to the sustainability of this recovery. The Westpac Melbourne Institute Index of Unemployment Expectations has been a reliable indicator in this regard.
There was a 6.2% increase in the Index indicating a deterioration in labour market conditions (a higher read means more respondents expect the unemployment rate to rise). The Index is still 19.7% below its April peak and 7.3% below the six- month average prior to March.
Recent editions of the survey have highlighted the significant recovery in confidence around the housing market. The November result accelerates that trend.
The ‘time to buy a dwelling’ index surged 8% from 122.2 to 132.0. That is the highest reading since November 2013. It is 11% above its level from a year ago.
Results were very strong in NSW (up 9.4% to 131.6) and Queensland (up 11.7% to 132.4) while even Victoria is seeing a solid recovery (up 5.2% to 124.2).
The ‘time to buy a dwelling’ and the Westpac Melbourne Institute House Price Expectations Indexes do not always move in the same direction. We view the ‘time to buy’ index as measuring the market sentiment of owner occupiers who are sensitive to shifts in affordability. The House Price Expectations Index in turn captures a key driver of sentiment amongst investors who are focussed more on the potential for capital gains.
In the early stages of a strong market upturn both indexes will tend to be aligned. That is the case in the November survey where the House Price Expectations Index lifted by an impressive 12% to be only 7.3% below its level in March and 5.5% above its long-term average.
Signs are particularly encouraging for the two major markets – NSW (up 8.9% to 128.9) and Victoria (up 19.5% to 120.20)
Without doubt this survey is signalling a strong resurgence in the housing market.
For now, the boost from record low interest rates is clearly over-riding negatives around high unemployment; the overhang of deferred loans; the prospect of withdrawal of significant fiscal support; slow population growth; and rising vacancy rates.
The main message from this survey is the encouraging optimism which is building around the outlook for the housing market. In some circumstances there may be a concern that this prospect will disturb the monetary authorities. But in a recent speech the Governor noted that financial stability “remains an important issue today, but the considerations have changed somewhat to the extent that an easing in monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans. In so doing it can reduce financial stability risks”.
In short, the monetary authorities, who are usually unnerved by booming confidence in the housing market, are supporters of these developments due to the boost that a strong housing market will give to jobs and growth.
The key issue for the sustainability of this recovery in the housing market will be whether the headwinds discussed above will represent a sufficient drag on the progress which can be expected by the absence of the usual constraint – rising interest rates.
Meh. time to rejig your weightings, Bill. The index is clearly confusing virus success with economic success. A point supported by the divergence with the Roy Morgan series.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
