Rate cut flops with consumers

It appears consumers are not easily bought at the moment with the Westpac/Melbourne Institute Consumer Sentiment reading a measly gain of 0.8% following a 50bps rate cut and cash splash Budget. Here are the major components:

Nice pop in family finances which reverses April’s dump. Otherwise, nada.

Full details below.


Houses and Holes
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  1. Well there should be no surprise here.

    Mortgage holders receive only a portion of the rate cut, savers and self-funded’s lose out, only low income and welfare recipients to benefit from the cash splash, carbon tax around the corner, gloom and doom in ever increasing doses in the media, potential EU collapse with consequences unknown, daily reports of job losses, the debacle that calls itself a government, the less than inspiring opposition, the loss of faith re Thompson and Slipper, endless scare tactics by Flannery and Steffen, JP Morgan’s $2billion reminder that nothing has changed, the ACTU threatening a fighting fund – and everyone knows where that has the potential to go.

    Any wonder confidence sapped in this down-under envy of the world location…

  2. Calculate a tax free cost reduction in household mortgages on perhaps 80% of the total housing debt times 0.35% and that comes to a lot of extra stimulus flowing into the pockets of householders, but it will take a little time for them to see that in their bank statements.

    I haven’t seen many wanting to buy houses because of the rate cut yet, so I agree for that point, but sooner or later the extra money in pockets coupled with some faith in their future security will stimulate, even if it takes another couple of cuts.

    I don’t think that the national pysche in Australia is as fragile as it is in the USA and EU countries where they have been hit for a six, we are just in that cautious stage rather than in a state of fear.

      • The punter also wants to deflate. Have a look at that “time to buy a major household item” number – strongly negative.

      • Fair point, but may I point out that unskilled wages overseas are very low compared to ours, so to them the “working mans home” is still expensive.

        I think that gets hidden because their higher paid executives and management etc are paid more than us, so the difference in the medians isn’t obvious.

        People on the dole here earn more than low paid unskilled workers from what I have seen, and that is from actual requests sent to me to refinance.

        I had one request to refi a house worth $118,000 which would be a snap for anyone with a job here, but he only earn’t about $18,000 pa and had a loan of $75,000 at 7.5% as I recall. I could send you the request subject to privacy if you were interested. I have received other similar requests – it’s worrying.

        So I think that the direct comparisons that we tend to make only hold up with better paid workers, who tend to live in better suburbs in cities where median prices are similar to ours anyway.

        When we have built our own “rust belt” I would expect something similar to happen here. Our stage of development is different, and there are differences between “young and growing” to “aged and slowing” as in the USA and Europe.

  3. Jumping jack flash

    No wage growth to speak of, a growing aversion to new debt (or debt at capacity – see wage growth), a mindset of deleveraging as quickly as possible, and a fraction of the cut passed onto the indebted.

    Nope, not a surprise.

  4. The Psyop of the rate cut lasted one day for us but I think it really only brought forward spending.

    We are discretionary retail in WA and the Saturday after the rate cut was about twice what we would take on a normal Saturday. Last Saturday was about half. Mid week has been dead. I know correlation isn’t causation but I’m compelled to read the tea leaves.

  5. When the underlying asset (*cough*) the house has $50,000 ‘disappearing’ ($25K in falls and the 25K you expected in rises via the spruikers), $200 a month in the hand is rather insignificant. The Eurozone has SFA to do with it. Baz Beerslab was pinning his hopes on house prices to the moon. He now realises he has been had.