Mortgage rate concerns drag household sentiment back down
Australian consumer confidence has slumped, with fresh Westpac-Melbourne Institute data showing sentiment has fallen back towards the deeply pessimistic levels seen earlier this year — a shift brokers should be prepared to discuss with anxious clients.
Sentiment slides as rate fears build
The Westpac-Melbourne Institute Consumer Sentiment Index dropped 5.2% to 84.4 in September, down from 88.9 in August.
Matthew Hassan (pictured), Westpac's head of Australian macro-forecasting, attributed the fall to "a broad-based decline led by a pull back in current assessments of family finances."
Petrol prices climbing back above $2 a litre, following the end of a temporary fuel excise cut, combined with a stronger-than-expected July inflation read, have reignited fears the Reserve Bank could lift rates again.
Those fears are now widespread: 64% of consumers expect mortgage rates to rise further over the next year, up from 59% in August, while the figure climbs to 73% among households already holding a mortgage. The Westpac-Melbourne Institute Mortgage Rate Expectations Index rose 7.3% to 170.4, nearing levels last seen in June.
That anxiety isn't misplaced — all four major banks now expect a rate hike before year's end.
Homebuyer sentiment retreats sharply
Confidence around the timing of a purchase has also reversed. The "time to buy a dwelling" index fell 10.7% to 85.5, undoing the previous month's rally, with existing homeowners driving much of the pullback — sentiment in that group swung from a slightly positive 104 in August to 86.4 in September.
Despite this, house price expectations were comparatively steady, dipping just 0.4% to 110.3, suggesting households remain uncertain about price direction rather than convinced of further falls. The housing figures back this up — CommBank economists now forecast a national peak-to-trough fall of around 9%, with Sydney and Melbourne facing the steepest declines.
Job security concerns also ticked up, with the Unemployment Expectations Index rising 2.8% to 139.4, driven largely by "significantly larger rises in job loss fears amongst consumers working in the construction and hospitality sectors."
Weaker sentiment, weaker conditions: broker takeaways
It's not just consumers feeling the strain — NAB's latest Business Survey shows conditions turned negative for the first time in six years, with weakening profitability that NAB economists say "bears watching, given its leading relationship with broader labour market conditions" — a signal brokers with self-employed clients should note.
For brokers, the data points to a client base growing more cautious just as spending intentions weaken across the board — sentiment among mortgage holders fell 14% overall, with an 18% drop in appetite for major purchases.
Despite the gloomier mood, Westpac's economists remain sceptical the Reserve Bank will act on rate expectations alone, noting they "think the board is unlikely to move on the basis of one monthly inflation read in what is still a noisy series."
With the RBA's board next meeting on 28-29 September, brokers may want to manage client expectations carefully, given how sensitive sentiment now appears to incoming data.
