Consumer sentiment hits 30 year low
Steadying interest rates have failed to make an impact on cost of living concerns
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Consumer sentiment is at lows not seen since the recession of the early 1990s according to data released today. The Westpac-Melbourne Institute Consumer Sentiment Index revealed the three-month pause in interest rates has failed to boost consumer confidence down a further 1.5 percent to 79.7.
The report, released by Westpac today, pointed to cost of living pressures and inflation as the major reason for continued caution in household spending.
“Persistent pessimism has continued despite easing fears of further interest rate rises,” Westpac chief economist Bill Evans said. “This has seen a clear lift in the confidence of mortgage holders, up 7.8 percent in the latest month. However, this gain was more than offset by a 6.1 percent fall in the confidence of renters and a 5.8 percent fall in the confidence of consumers that own their home outright.”
When surveyed, consumers pointed to inflation as their greatest concern, indicating that household budgets are continuing to feel the pinch of high fuel, food and services costs. This was followed by budget and taxation, economic conditions, interest rates and employment.
While the outlook for further interest rate rises looks generally positive for mortgage holders into 2024, consumers considered news on the economy more negatively than positively.
“The cost of living remains the key negative for confidence in this cycle,” Mr Evans said. “While the ‘threat’ of rising rates is expected to ease further, a sustained recovery in confidence will only emerge when households are much more comfortable with the cost of living.”
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The recent budget has forced a reckoning for property investors.
Negative gearing now restricted to new residential builds, the CGT discount gone and on paper, the numbers look different.
And many investors are responding by pivoting toward yield, prioritising cash flow over capital growth in a way that property strategists say misses the point entirely.
“The debate has shifted to yield versus growth as if they are opposing forces,” says Abdullah Nouh, founder of Melbourne-based buyers’ agency Mecca Property Group. “But that framing is itself the mistake.”
Nouh, who works with high-net-worth families and investors on long-term acquisition strategy, argues that capital growth remains the primary driver of genuine wealth creation and that the post-budget environment has made quality assets more important, not less.
The numbers make his case plainly. An additional $500 per week in rental income is welcome. A prestige asset appreciating by $1 million over a market cycle is transformative.
These are not equivalent outcomes, and portfolios built around yield at the expense of location and land value tend to generate income while wealth stands largely still.
The more nuanced shift Nouh is seeing among sophisticated investors is a move toward assets where both outcomes can be engineered simultaneously – established homes on substantial land in quality locations, where the existing dwelling can be repositioned, rental returns improved, and the underlying land value compounds independent of what sits on it.
For investors with existing equity, commercial property is also entering the conversation in a more serious way.
Prestige industrial assets, medical centres and long-leased essential retail offer income profiles that residential property in most capital city markets cannot currently match: longer lease terms, tenants covering outgoings, and greater predictability than the residential tenancy cycle.
“The investors who build lasting wealth are rarely the ones who chased yield or growth exclusively,” says Nouh.
“They are the ones who built a strategy they could sustain – one that generated enough income to hold quality assets through multiple cycles while those assets compounded in value.”
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