Banking major provides dovish RBA outlook as household spending stalls
More mixed messages on the outlook for property finance emerged on Wednesday after CommBank released its latest householding spending data for December.
The banking giant clocked a 1.8% month-on-month decline in spending, driven primarily by a high-single-digit fall in household goods and declines across the hospitality and recreation segments.
Utilities, comms and transport spending all rose, suggesting consumers are cutting back on things they can control while being gouged on things they cannot.
Although household spending rose more than 5% on an annualised basis, this offered little comfort for CommBank chief economist Stephen Halmarick.
“The fall in household spending in December and subdued growth throughout 2024 emphasises that the consumer remains cautious,” Halmarick said.
“As we’ve seen in past years, sales spending on items like household goods was brought forward to October and November to take advantage of Black Friday sales promotions, which resulted in a drop in December.”
CommBank’s report followed the latest Westpac–Melbourne Institute Consumer Sentiment Index on Tuesday, which has remained on the pessimistic side for two months running.
Down but not out
While the above data suggests a degree of nervousness among the Australian public, Bendigo Bank chief economist David Robertson contended that “spending and consumer sentiment is fragile but not collapsing”.
Robertson pointed out that strong household spending data in November made for tough December comparatives.
“A deeper and more sustained fall in household demand would be concerning, however real household disposable income is forecast to recover in 2025 thanks to recent tax cuts and moderating inflation, and also after RBA (Reserve Bank of Australia) rate cuts,” he told MPA.
NGM Group chief finance officer Richard Burton cut a similar cautiously optimistic tone.
“Consumer sentiment remains higher than it was 12 months ago, driven by expectations of lower interest rates providing relief to family budgets,” Burton said.
While he conceded that sentiment dipped slightly over the last two months after strong inflation data in late 2024 pushed those rate expectations back, Burton is now seeing the mood come around again.
“There now seems to be a 50/50 chance of an interest rate cut in February, which would provide much-needed relief to family budgets.” NGM Group recently conducted a record-setting $450 million debt issuance to prime itself for an uptick in lending demand.
Whether RBA cuts commence in February, May, or even later remains to be seen, although CommBank has made possibly the most dovish prediction among the majors yet.
“We expect 100bp (basis points) of monetary policy easing through 2025,” Halmarick said on Wednesday, with the first cut tipped for next month. In comparison, ANZ expects 50 basis points worth of cuts starting from next month while NAB and Westpac have emerged as the hawks; both banks are not expecting the RBA to start easing until May.
What does it mean for cold hard deals?
According to Shane Oliver, chief economist and head of investment strategy at lender AMP Bank, the data “is telling us that households are still fairly cautious”.
Oliver noted that the consumer confidence survey included questions around if now is a good time to buy a dwelling, “and it remains pretty depressed”.
“It's sort of up off the bottom, much like confidence generally is off the bottom, but it's still pretty weak,” Oliver said. “(It) would suggest that demand for housing loans still remains a bit constrained.
“You've still got constrained consumers, high interest rates still having a negative impact, and some of the strength that we were seeing in the housing market around Australia is starting to slow down.”
Oliver’s comments reflect what most experts on the ground are saying – without cuts to the cash rate, dealmaking will continue to trickle in rather than pour.
As for National Mortgage Broker managing director Gerald Foley, he is expecting a “strong lending market as rates start to fall this year, which will present more refinance opportunities”.
“Also expect to see more buyers looking to come back into the market as rates fall and they navigate their way through their cost-of-living challenges,” he said.
Clearly, the property market is hoping the doves emerge victorious over the hawks in the coming months.