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While rate rise fears have eased in January, the major bank has noted that mortgage holders still maintain a “hawkish” interest rate outlook.
Westpac has found that consumers with mortgages continue to be wary of the Reserve Bank of Australia (RBA) increasing interest rates with 60 per cent expecting rates to rise, despite three out of four economists expecting the cash rate to move lower and futures markets pricing 50 bps of cuts by the end of 2024.
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Despite this, rate fears are easing among consumers in the latest Westpac-Melbourne Institute Consumer Sentiment Index survey, with 52 per cent of respondents in January expecting the standard variable mortgage rate to increase over the following 12 months, down from 60 per cent in December.
The major bank noted that the 52 per cent was the lowest share since the RBA first halted its rate tightening cycle in April 2022.
“With no RBA meeting in January, the shift likely reflects other developments including: the lower-than-expected November monthly CPI indicator, which showed inflation slowing to 4.3 per cent per year; and a big shift in interest rate expectations abroad, with the US FOMC now widely expected to begin lowering rates in the first half of 2024,” Westpac senior economist Matthew Hassan said.
Consumer sentiment still remained around “deeply pessimistic” levels, as the consumer sentiment index fell 1.3 per cent to 81 in January, down from 82.1 in December on the back of ongoing cost-of-living pressures and high interest rates.
“The continued weak reads on sentiment show Australian consumers remain under intense pressure as the surging cost of living, materially higher interest rates and rising tax take weigh heavily on incomes,” Mr Hassan said.
“However, high inflation is still the RBA’s primary concern. As such the quarterly Consumer Price Index (CPI) release in late January will be critical to its policy decision in February.
“On balance, we expect the RBA to leave rates unchanged in February, and to be unlikely to raise rates further from here. However, a material upside surprise on inflation would make for a more finely balanced decision.”
Additionally, a “stark gap” between buyer sentiment and price expectations is still evident, with the “time to buy a dwelling index” declining 3.1 per cent to 72, while the Westpac-Melbourne Institute Index of House Price Expectations rose 0.5 per cent to 158.1.
“Over two-thirds of consumers expect prices to continue rising in the year ahead, essentially unchanged on December. Expectations are markedly higher on a year ago, up 51.5 per cent,” Mr Hassan added.
Similarly, the Commonwealth Bank of Australia (CBA) also recorded a sharp fall in its latest Home Buying Index of 31.1 per cent per month in December and a 40 per cent drop year on year.
CBA stated the decline “likely reflects” the early November rate hike bringing home loan applications down more than usual.
AMP chief economist Dr Shane Oliver noted home price expectations remain high “consistent with last year’s rise in home prices” as consumers still consider now to be a poor time to buy a dwelling.
“The divergence between this points to a downside risk for house prices ahead, although prospects for RBA rate cuts point to support later this year,” Dr Oliver stated.
Dr Oliver added that AMP expects the RBA to start lowering interest rates around June with 4 rate cuts pencilled in for this year in anticipation of the Federal Reserve and the European Central Bank to begin cutting rates around April this year.
[RELATED: CBA Home Buying Index plummets in December]
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