Consumers expect higher house prices, rates in 2017
Nearly two-thirds of households expect house prices to rise, in spite of the expectation of higher interest rates.
The Westpac Melbourne Institute Index of Consumer Sentiment has found that while most consumers believe interest rates will rise over the coming 12 months, 64% also believe house prices will rise. The result was up from 39% at the tame time last year. In the buoyant NSW and Victorian markets, consumers were even more optimistic, with 70-75% expecting house prices to rise.
The survey determined that 60% of consumers believe interest rates will rise over the coming 12 months, while 35% believe they will remain steady. Only 5% of respondents said they expected further rate cuts in the year ahead. By contrast, only 37% of consumers anticipated higher rates when the survey was last conducted in August 2016.
Though house prices are expected to rise, consumers are showing more caution about buying. The “time to buy a dwelling” index fell by 7.8% to sit at its lowest level since May 2010 when the Reserve Bank was still lifting the official cash rate.
“Victoria, Queensland and WA all recorded 10%-plus declines in the month, although the NSW Index remains the weakest across the states. The fall points to a shaky start to the New Year for housing markets,” Westpac senior economist Matthew Hassan said.
Hassan said Westpac’s outlook for interest rates ran contrary to that of consumers, and to a growing number of economists. The bank has forecast steady rates throughout 2017 and into 2018.
“Indeed, Westpac’s view of a slowdown to below-trend growth pitches the risks to the 'on hold' call in 2018 to the downside, in clear contrast to current market views,” Hassan said.