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April 10th, 2013 
Peter Nolan
Updated
Consumer confidence has dipped unexpectedly after two months of strong gains.
The widely watched Westpac – Melbourne Institute Index of Consumer Sentiment fell 5.1 per cent in April to 104.9, from 110.5 the month before.
However, the reading means there are more economic optimists than pessimists in Australian households, and confidence is still above its long term average.
Confidence had risen almost 10 per cent over the previous two months, so Westpac’s chief economist Bill Evans says it was no surprise it did not rise again, but the size of the fall did catch him off guard.
“This result emphasises how fragile consumer confidence has become in the current environment,” he noted in the report.
“In fact, the index is now only 1.5 per cent above its level in November 2011, following the Reserve Bank’s first cut in this easing cycle and only 0.6 per cent above the print from last November.”
However, TD Securities Asia-Pacific macro strategist Alvin Pontoh says the fall is not particularly worrying, given the current relatively high level of confidence.
“To put it in context, 100 is the break-even mark, and April’s level is still the third highest reading in two years, so we wouldn’t read too much into the headline drop, per se,” he noted in an analysis of the data.
Rate, housing affordability worries
Mr Pontoh is more concerned about some of the detail within the survey, however.
“The ‘time to buy a major household item’ index dropped sharply (-7.6 per cent to 130.2), foreshadowing a slower pace of retail sales after a very strong start to the year,” he observed.
“Also of some concern is the drop in the ‘time to buy a dwelling’ index, from 144.5 to 128.4 (-11.4 per cent) – the lowest level since September – perhaps a reflection of lower affordability or worries over future interest rate hikes.”
Growing consumer expectations that interest rates may have reached their trough have been reflected in an increasing demand for fixed rate home loans.
Data released yesterday by home loan broker Mortgage Choice showed that fixed rate loans were making up the highest proportion of new loan approvals in five years, with more than a quarter of new borrowers opting to lock-in their rates.
Citi’s economists, Paul Brennan and Joshua Williamson, say it is possible that news around rising home prices is denting consumer confidence, despite rising real estate prices usually being seen as a positive for consumers.
“Affordability may be emerging as an issue. We note that survey respondents who identified as tenants, i.e. not owning a property or paying off a mortgage, reported a 19 per cent fall in sentiment in the month,” they wrote in a note on the survey results.
“Some potential buyers could be postponing the decision to buy a home, which may explain the large 11 per cent decline in the ‘time to buy a dwelling’ component.”
Bill Evans says the combination of global financial concerns around Cyprus and a corresponding decline in share prices, as well as the growing belief that there may not be any more rate cuts, have dented confidence.
“The disturbing news around Cyprus with associated risks around European stability may have unnerved respondents,” he hypothesised.
“There was also some media coverage locally around prospects of rising interest rates perhaps as soon as year end. The decision by the Reserve Bank to hold rates steady at its April meeting was widely expected but would not have allayed any concerns about rising interest rates.”
Topics:
business-economics-and-finance,
economic-trends,
housing-industry,
retail,
money-and-monetary-policy,
australia
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Source Article from http://www.abc.net.au/news/2013-04-10/consumer-confidence-unexpectedly-dips/4620292
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