Housing affordability hits consumer confidence

Westpac chief economist Bill Evans said that in particular, confidence in Australia's economic outlook has faltered.

“The components of the index measuring consumer views on the economic outlook over the next 12 months and [also over] five years are both down by over 10 per cent from their average reads over the last three months,” he said.

The deterioration in sentiment is likely to fuel further speculation that another rate cut is on the cards, particularly as affordability constraints look set to slow down house price growth.

“The messages from this survey are that a potential drop-off in housing demand due to affordability issues might slow the current surge in prices, while the other issues around the labour market are unlikely to disappear,” said Mr Evans.

“The index tracking responses to the question on whether now is a good ‘time to buy a dwelling’ fell by 4.2 per cent in December to be down by 10.5 per cent from its September peak,” he said.

Westpac have again forecast a further 25bps cut to the cash rate sometime early next year.

“Westpac has maintained a forecast for another rate cut of 25bps at that February meeting for some time. It may be that the interaction of forces which we envisage takes longer to become apparent to the [Reserve Bank] board and the rate cut decision is delayed for some months,” said Mr Evans.

“For now, we retain our call for a cut in February while fully recognising that a delay to that move is also a realistic outcome”.