Stable rates have proven a boon to consumer confidence, with more households now eyeing the housing market than at any time in the past two years.
The Westpac Melbourne Institute Index of Consumer Sentiment has jumped 8.1% in September, a result Westpac chief economist Bill Evans has called "surprisingly strong". Evans said the index tracking whether consumers believe now is a good time to buy a dwelling jumped 15.1% to its highest level in two years.
"We think it emphasises just how important interest rates are to households," Evans said.
Evans commented that in addition to a "more relaxed outlook for interest rates" among households, the June quarter's strong economic growth gave a boost to household confidence. The economy grew by 1.2% in the June quarter, following a 0.9% contraction in the March quarter.
Lower inflation figures may also boost confidence of prolonged rate stability. The Australian Bureau of Statistics has revised its inflation figures downward, indicating a core inflation reading of 0.6% for the June quarter rather than the 0.9% it reported in July.
In spite of the sharp increase in household confidence, Evans said consumer sentiment remains depressed on last year's results.
"It is 14.8% below the average reading in 2010, 14.4% below its level a year ago, 7.1% below the average for the first half of 2011 and 4.2% below the reading in June," Evans said.
He also warned that consumer sentiment on the property market may not filter through to consumer action.
"There is a risk that this signal may be overstating the prospects for the housing market. With households still being particularly concerned about their own financial position over the next 12 months there is a risk that, while seeing value, they will not be prepared to act on this," he commented.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186, Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and a related entity of DPN Pty Ltd. Casa Capace Operations Pty Ltd ABN: 79 624 981 184, NDIS provider Number 4050038018 trading as Casa Capace.