Consumers still cautious following RBA pause

Consumer optimism has retreated again after staging a recovery over the past few weeks.

The Reserve Bank’s decision to keep interest rates on hold was not enough to coax consumers out of their cautious state, with confidence levels falling 1.1 points last week.

The weekly index collated by ANZ and Roy Morgan came in at 77.6 points, still well below the 111.1 monthly average since 1990.

ANZ economist Madeline Dunk said the gauge had been stuck below 80 points for six consecutive months, the longest stint on record.

“This is despite the RBA keeping the cash rate on hold at its September meeting, and the June quarter GDP data suggesting that Australia is on track for a soft landing,” she said.

The sub-indices were mixed, with the future of the economy worrying respondents more than their own short- and long-term financial situations.

While the decision to keep interest rates on hold for the third consecutive month wasn’t enough to push up the overall score, Ms Dunk said confidence among those with a mortgage lifted to its highest level in five months.

Predictions from the home building industry suggest construction will be constrained, keeping upward pressure on rents and house prices.

Fresh forecasts from Master Builders Australia have new starts hovering below its 200,000 dwelling yardstick used to ensure enough homes are being built to keep up with population growth for the next two years.

In the 2023/24 financial year, the industry is set to hit a low of 170,087 new starts.

Home building is expected to recover throughout 2024/25, but is not expected to crack the 200,000 threshold until 2025/26.

By 2027/28, home building is expected to hit a peak of 241,017 new starts.

A string of interest rate hikes and a shortage of workers and materials have been keeping a lid on new home building.

But the end of the interest rate hiking cycle will help underpin the recovery, especially for higher-density developments that have a lower risk appetite.

Recovery in home values would also likely attract more individuals and investors into the market, after they sank over much of last year.

Bottlenecks holding up projects, namely labour and materials shortages, are also expected to clear and support a recovery in the coming years.

And while home building tapers off, a wave of infrastructure projects is anticipated to keep the construction industry busy.

A healthy pipeline of transport and other major projects is tipped to keep the total value of building and construction activity growing over the next three years.

Total activity is expected to peak at $246.2 billion in 2026/27.


Poppy Johnston
(Australian Associated Press)


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