Consumer confidence has returned to around decade highs after a summer marred by minor outbreaks and further restrictions. Picture: NCA NewsWire / David Geraghty
Consumer confidence has returned to around decade highs after a summer marred by minor outbreaks and further restrictions. Picture: NCA NewsWire / David Geraghty

‘Tensions’ in housing market as affordability worsens

Consumer confidence has lifted back to near December's 10-year highs, buoyed by the strong economy and national vaccine rollout, but the good news in Westpac's latest sentiment survey was tempered by "evidence of tensions emerging in the housing market" and warnings of declining affordability.

Last week's national accounts provided more evidence of the economy's powerful rebound from the worst recession in nearly a century, and these improving prospects amid the national vaccine rollout helped lift Westpac's confidence index by 2.6 per cent to 111.8 this month, just shy of the recent December high.

The "time to buy a dwelling" subindex, however, retreated further this month - a fourth consecutive fall to be down 11.9 per cent from the peak in November.

Chief economist Bill Evans said "the decline suggests resurgent prices are already starting to curb buyer interest and that we may see some easing in the recent surge in demand from owner occupiers, particularly from first home buyers who are the most sensitive to affordability".

In contrast, after home values lifted by 2.1 per cent in February - the fastest monthly pace in over 17 years - Australians are expecting further gains, with Westpac's "house price expectations" gauge increasing a further 3.1 per cent in March to a new seven-year high and 13 per cent above pre-pandemic levels.

"The index is a better lead indicator of the confidence of investors, whose presence in the early stages of the current housing boom has been overshadowed by owner occupiers," Mr Evans said.

"Our survey signals sustained high confidence levels in the community (as well as) enthusiasm for spending and comfort with job prospects," he said.

"But markets and some commentators have been warning against damaging housing bubbles. The survey points to rising house prices although investors still appear cautious. Owner occupiers, including first home buyers, may already be becoming deterred by the associated deterioration in affordability.

"Indeed it seems very likely that investors will soon become a much bigger factor in the market."

Record levels of new borrowing has been dominated by those looking for a home in which to live, but lending commitments to landlords has recently picked up to be 10 per cent up on a year earlier.

Reserve Bank governor Philip Lowe this morning said he was "carefully watching" a red hot property market for signs of slipping lending standards, but said there was no evidence of a "debt financed speculative boom in asset prices". The Council of Financial Regulators, which is chaired by Dr Lowe and includes the heads of APRA and ASIC, has also flagged it was monitoring the property market for signs of excess.

The RBA has ruled out lifting rates to cool the property market, with Dr Lowe saying he was more concerned about unemployment and low wages than any incipient house price bubble.

Analysts at ANZ and UBS predict that regulators will reimpose restrictions on banks later this year.

Mr Evans said he was "confident that if the (RBA) does become concerned about overheating, the likely policy response will be to impose regulations on bank lending rather than to increase interest rates".

Originally published as 'Tensions' in housing market as affordability worsens: Westpac


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