Thursday, November 11, 2010

Rates up. No sweat. This time. For now.

Rate rises seem to scarcely bother us any more. The most-reliable consumer confidence survey -the Westpac Melbourne Institute poll - took place all last week as the Reserve Bank was pushing up rates 0.25 per cent and as the Commonwealth Bank was lifting its mortgage rate 0.45 per cent.

Wespac chief economist Bill Evans says in the past when rate hikes have pushed mortgage rates north of around 7.5 per cent the confidence index has taken a big hit. Typically it shed 9 per cent.

But not this time. Released yesterday, the November index was down a mild 5.3 per cent, and importantly still clearly in positive territory.

The 1200 adults surveyed were asked five questions and the proportion of negative responses subtracted from the proportion of positive responses to give a number to which 100 is added meaning that a confidence index of 110 is one where optimists outweigh pessimists by ten percentage points.

That's what happened as the Reserve Bank and the Commonwealth moved - optimists outweighed pessimists ten percentage points; 10.7 actually because the index was 110.7...

Asked to guess how we could possibly remain confident as rates climbed to levels that once would have scared us, Mr Evans points to the high Australian dollar.

Why wouldn't you agree that "now is a good time to buy major household items" when the price is low?

An astounding 63.3 per cent of us agreed that now was a good time to buy as the Reserve put up rates, a figure only slightly down on the 63.5 per cent recorded in October, itself a five-year high.

With only 19.4 per cent of us saying now was a bad time to buy the index for that question reached 143.9, one of the highest recorded.

While the latest hikes haven't unsettled us en masse, they have spooked some of us more than others.

Women are much more worried than men, their confidence level diving almost 9 per cent to 102.5, close to the level where pessimists and optimists are evenly balanced.

Men by contrast remain extraordinarily optimistic with an index of 119.3 meaning optimists outweigh pessimists by around 20 percentage points.

Labor voters also feel much better than Coalition voters, recording a confidence index of 124 compared to 104.

Renters also feel much better than mortgagees, perhaps because they know the rate rise won't hit them immediately and because it might restrain house prices.

Published in today's Age

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