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Reduced bank loan deferrals, extended budget stimulus and lower borrowing costs as well as a faster COVID-19 reopening have triggered the sharpest rise in consumer confidence and property buying intentions since records were kept.
The confidence readings are expected to jump further on the coronavirus vaccine breakthrough and the easing of lockdown restrictions.
Prime Minister Scott Morrison said on Wednesday that Australia was now clearly emerging from its recession after the surge back in confidence.
“The comeback is under way, no doubt about that,” he said. “Confidence is rebuilding in our economy; it is at a seven-year high. That shows Australians getting their confidence back as we emerge from this recession.”
Commonwealth Bank chief executive Matt Comyn, who reported a significant drop in loan deferrals on Wednesday, said the bank would upgrade its forecasts for employment, gross domestic product and house prices.
But he warned that exuberance in the market needed to be carefully monitored as investors started to buy into riskier assets.
“The other consequence of low rates, which we will need to watch closely, is customers seeking riskier assets as a consequence of a very low rate on offer for savings products,” Mr Comyn said.
“Whether that is via the sharemarket – and we have seen very strong volume and account growth in CommSec – or whether that is through the housing market, which we have seen pick up.”
The S&P/ASX 200 Index rose 1.7 per cent to 6449.7 points, 10 per cent off its record close, while the 10-year bond yield drifted out again to 1 per cent, up 20 basis points in less than a week.
Loan deferrals at CBA have fallen to just 2.9 per cent of the bank’s total book as of October 31. This compares with 10.8 per cent at the peak of the crisis.
Home loan deferrals fell to 46,000 with a value of $19 billion, down from the June peak of 125,000 with a value of $49 billion.
This compares with similar falls at rival banks ANZ, Westpac and NAB as customers returned to making payments or had pauses extended for another four months.
At the end of October, $133 billion, or about 7.4 per cent of the $1.8 trillion in home loans outstanding across all banks, was afforded temporary loan deferrals. This is down from 9 per cent just a month earlier.
Non-bank lender Firstmac said home loans subject to repayment freezes or reduced payments fell to 3 per cent of its loan book, down from a June peak of 5.71 per cent.
Westpac Melbourne Institute’s latest consumer confidence index – which was taken in the first week of November before the second easing in Melbourne restrictions, but just as the Reserve Bank announced further action – jumped to a seven-year high. The recovery in consumer sentiment is the sharpest seen in the history of the series.
The “time to buy a dwelling” index surged 8 per cent to 132 points – the highest reading since November 2013 – while the House Price Expectations index jumped 12 per cent to be only 7.3 per cent below its level in March.
NSW was up 8.9 per cent to 128.9 points, while Victoria was up 19.5 per cent to 120.2 points. Actual residential property prices increased nationally for the first time in five months, by 0.4 per cent in October, according to CoreLogic’s November release.
Westpac’s Bill Evans said the groundwork for a housing-led recovery was in the works.
“Without doubt, this survey is signalling a strong resurgence in the housing market,” Mr Evans said. “For now, the boost from record low interest rates is clearly overriding negatives around high unemployment, the overhang of deferred loans, the prospect of withdrawal of significant fiscal support, slow population growth and rising vacancy rates.”
Home-owner worries have also clearly started to ease, with only 49 per cent worried about the value of their property falling in October compared to 64 per cent in April, according to ME’s latest Quarterly Property Sentiment Report.
As confidence in the property market grows, confidence in spending also grows.
Westpac’s “time to buy a major item” sub-index rose 6.7 per cent to record its highest level since August last year.
“This will be a particularly welcome sign for Australia’s retailers heading into the critical Christmas high season,” Mr Evans said.
ANZ card spending data released on Wednesday shows consumers have already responded rapidly to the easing of restrictions in Melbourne, pushing Victorian spending to 10 per cent higher than the same week last year.
This is up from the week to October 25, when spending was down 19 per cent compared to the same week last year.
Some of this spending is attributable to an increase in the use of cards over cash.
The kick in consumer confidence follows earlier business and consumer readings from NAB and ANZ, pointing to record highs in confidence.
NAB chief economist Alan Oster said the confidence readings were a reminder of the “unusual nature of this shock and the extensive government support provided to households”.
Last week the Reserve Bank upgraded its economic growth forecasts and now expects household consumption to surge back 13 per cent for June 2021, overtaking its previous forecast of 8 per cent growth issued only three months ago.
Source: Australian Financial Review