Join us for an exciting expose, where the Property Trio delve into the intriguing world of consumer sentiment and explore the recent developments in our markets.
In particular, we’ll be focusing on the May readings of the Westpac Melbourne Institute Consumer Sentiment Index and uncovering some thought-provoking trends.
Source: Westpac Melbourne Institute
Consumer Sentiment: A Reflection of Australian Perceptions
What we’ve learned from the May readings is that Australian’s are a fickle bunch. As soon as the Reserve Bank of Australia (RBA) paused rates, every category within the consumer sentiment index experienced an improvement. It’s clear that our perspectives can shift rapidly, with the RBA largely influencing how most Australians feel about various aspects of their lives.
House Price Expectations: Defying Rate Rise with Optimism
House Price Expectations Index: Despite the rate rise in May, this index surged from 130 to 144 points, suggesting growing optimism among Australians regarding future house prices.
Time to Buy a Dwelling Index: This index increased from 71 to 76 points
Journalists’ Influence: Assessing the Property Market’s Direction
Journalists have been asserting that the property market downturn is over and that it’s not just a temporary rebound. However, it’s hard to determine whether these claims hold true or not, only time will tell! The collective decisions made by individuals can influence the accuracy of such predictions and make them come true.
Furthermore, the House Price Expectations Index witnessed a significant surge of 10.7%, indicating that many people are aligning with the notion that the market has reached its lowest point and is poised for growth.
When we consider both the consumer sentiment and the underlying economic fundamentals, there seems to be little standing in the way of a continued rise in prices.
Economic Conditions: A Nose-Dive Fueled by Affordability and Inflation
It’s important to note that sentiment towards the outlook for economic conditions over the next 12 months and the next 5 years experienced almost a 10% decline over the month. Several significant factors contribute to this decline, including housing affordability and inflation.
Historically, we’ve seen a two-speed economy—one driven by overall economic performance and the other by the property market. While the RBA doesn’t directly target asset prices, their recent meeting minutes indicate their awareness of this issue. It’s a delicate balancing act for them, caught between economic concerns and the potential for surging house prices.
Front Page News: RBA’s Unexpected Rate Increase in June
Money markets were predicting a 50% likelihood of a further rate increase in August, with some suggesting the possibility of one or two additional rate hikes. The prediction in August is linked to the release of inflation numbers at the end of July. However, the RBA surprised us yet again with another rate increase this month in June, and a July rise is a 50/50 bet or better now.
It becomes evident that we need a better dashboard for tracking inflation than quarterly assessments. The market pricings we rely on are an amalgamation of opinions, often timed with data releases.
US Debt Ceiling Dance: Impact on Markets Looming
Beyond our borders, the United States approached its debt ceiling of $31.4 trillion (yes trillion!) again, necessitating approval from Congress for an increase. After weeks of high-stakes budget negotiations, the dance between Republicans and Democrats came to an end on 3rd of June when President Biden signed the new agreement into law. Such negotiations can have a significant impact on global sentiment and markets fall during this period because of the huge implications of the USA defaulting on its debt.
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