Forget about the coronavirus, Australian’s are feeling as optimistic as they did nearly ten years ago as the economy continues to roar back to life.
Westpac’s latest consumer sentiment survey rose by 1.9% in February1, clawing back around half of the losses recorded in January after several COVID clusters weighed on confidence. The success in managing those outbreaks, along with the vaccine rollout, have seen households let out a collective sigh of relief.
“Nationally, confidence has clearly lifted substantially above pre-pandemic levels,” said Westpac Chief Economist, Bill Evans.
And as the government prepares to wind back stimulus at the end of March, consumer confidence will be critical for the economic recovery.
“It is vital that households, which have built up a very large financial buffer through the pandemic (recently estimated by the Reserve Bank at $200 billion or 15% of pre-pandemic annual income), are prepared to now use that buffer to partially offset the impact on the economy of the withdrawal of support programs,” he said.
What’s driving confidence?
The Consumer Sentiment Index is made up of several sub-indexes that rank how households are feeling about their finances, the economy and the property market.
Bill Evans says consumers are ‘extraordinarily confident’ about the economic recovery, particularly in the year ahead. But rising house prices appear to be dampening plans to purchase a property.
“The ‘time to buy a dwelling’ index fell 3.1% and is now 8.6% below its peak in November,” he said.
“This measure tends to reflect shifts in housing affordability. As such, the decline in recent months suggests recent increases in house prices may already be starting to weigh on the purchasing sentiment.”
New home sales slump
Separate data released by the Housing Industry Association shows the number of new homes sold plummeted in January compared to December, as the value of the federal government’s HomeBuilder grant was reduced.2
The scheme, which was initially scheduled to end in December, offered eligible applicants $25,000 grants to either build or extensively renovate a property. The government extended HomeBuilder by a further three months until the end of March to boost construction activity during the pandemic, albeit with a lower value and tighter criteria.
“The surge in sales at the end of 2020 can be attributed to HomeBuilder as households finalised contracts to build a new home before the end of the 31 December 2020 deadline to access the $25,000 grant,” said HIA Chief Economist, Tim Reardon.
“As a consequence of HomeBuilder drawing forward sales in December, New Home Sales in January 2021 were just 30% per cent of the number of sales achieved in December 2020.”
He says sales are expected to remain flat in February, before picking up again in March when the scheme is scheduled to end.
SOURCES: 1https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/economics-research/er20210210BullConsumerSentiment.pdf, 2http://links.hia.com.au/m/1/49984617/02-b21040-58f5469e4a254d6fb2acf1672ffaab03/1/245/02e88c4b-4195-4eed-ac85-a0607683236a
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