Housing Down, Confidence Up

Sydney, Oct 12, 2006 (ABN Newswire) - So housing softens and consumer confidence improves in the wake of the August interest rate rise and the fall in petrol prices.

Both factors can influence economic policy at the one time and even cancel each other out, but the question does remain: are falling petrol prices a danger in that they may boost consumer confidence to the point where the impact of the May and August rate rises is nullified?

That's the question to be decided by the whiz economists at the Reserve Bank and the guest speaker at the business economists' shindig in Sydney last night: RBA Governor, Glenn Stevens.

But the housing finance figures for August do show a marked (though small) softening as prospective home buyers and builders reacted to the August rate rise: as well there was a further weakening in housing deals for investment property, something that emerged in July with the reduction in tax rates.

There had been a surge in May and June in finance for investment housing, but this has been largely offset by the easing in activity in July and August.

Economists say the figures yesterday are neutral to positive for interest rates remaining unchanged for the rest of the year (something the NAB forecast on Tuesday).

The Australian Bureau of Statistics reported yesterday that housing finance commitments for owner-occupied housing fell one per cent in August, seasonally adjusted, to 63,217 and the total housing finance by value fell 1.3 per cent in August, seasonally adjusted, to $19.852 billion.

The ABS said "Investment housing commitments fell 1.4%, driven primarily by a large decrease in construction of dwellings for rent or resale (down $113m, or 19.0%), while owner occupied housing commitments fell 1.3%."

In the original estimates from the ABS"The number of first home buyer commitments as a percentage of total owner occupied housing finance commitments fell from 16.8% in July 2006 to 16.1% in August 2006, the number of fixed rate loan commitments as a percentage of total owner occupied housing finance commitments rose from 16.2% in July 2006 to 20.4% in August 2006". (The impact of the rate rise.)

And the total value of owner-occupied housing commitments (seasonally adjusted) fell by 1.3% (down $184m) in August 2006, following a revised 1.0% rise in July 2006.

"Decreases were recorded for purchase of established dwellings excluding refinancing (down $256m, -3.0%) and purchase of new dwellings (down $12m, -1.7%), partially offset by a rise in construction of dwellings (up $28m, 2.6%) and refinancing of established dwellings (up $57m, 1.5%)."

"The trend series in the value of owner occupied commitments increased by 0.7% in August 2006, continuing a run of increases since April 2004, albeit at a decreasing rate for the fourth successive month." (That's a sign of the overall softening.)

The ABS said '"The total value of investment housing commitments (seasonally adjusted) decreased by 1.4% (down $86m) in August 2006 compared with July 2006, following a revised decrease of 8.7% in July 2006. The decrease this month was due to fall in construction of dwellings for rent or resale (down $113m, -19.0%) more than offsetting an increase in purchase of dwellings by individuals for rent or resale (up $18m, 0.4%) and purchase of dwellings by others for rent or resale (up $9m, 2.1%). The trend series in total value of investment housing commitments decreased by 0.3% in August 2006."

So that was housing and signs of a slowdown: which generally equates with negative expectations.

That certainly was the results of the August survey on consumer sentiment from Westpac and the Melbourne Institute but since the sharp fall post the rate rise, sentiment has recovered, firstly in September and now this month.

The Westpac-Melbourne Institute Index of Consumer Sentiment rose 3.9 per cent to 105.2 points in October from 101.2 in September.

Westpac chief economist, Bill Evans, said "It appears that the effects of the August rate hike are starting to wear off for the consumer and also petrol prices have fallen by eight per cent since the last survey".

Petrol prices have fallen even further and look like continuing to ease as world oil prices backtrack.

And Evans said "Consumers are becoming used to the somewhat higher but still broadly neutral level of interest rates".

But economists point out that the Index itself is hovering around a neutral to slightly positive setting and is not an indicator that consumers are becoming more optimistic, just that sentiment is steadying and edging a bit further into positive territory.

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