TIP: consumer confidence down, home building starts up, bank bashing becomes a national sport

Looks like the parade of interest rate cuts may have had some unintended consequences


Australians are spending less, not more, as a result of the three rounds of official interest rate cuts since June. That's the finding of the latest Westpac Melbourne Institute Index of Consumer Sentiment, which fell another 5.5 per cent in October to reach a four-year low.


The thinking of Westpac's chief economist Bill Evans is that consumers are getting nervous about why the Reserve Bank has cut the cash rate three times since June. He said the biggest weak spot in the data is consumer sentiment around family finances, although sentiment around housing values is more mixed given increases in prices in Sydney and Melbourne.


Some good news could be that consumer sentiment is yet to be influenced by what the latest NAB Business survey has shown is an uptick in trading, job creation and profitability in September. It suggests employment will rise over the next six months.


Another index that saw a timely increase was ABS construction start figures, which rose 1.1 per cent in June. This is due to an increase in apartment, townhouse and semi-detached housing starts in the June quarter.


Bad news for house and land developers and builders, however; detached home starts experienced their biggest quarterly decline since September 2008, dropping another 10.6 per cent.


Month-on-month decreases in home construction, particularly in Australia's biggest housing markets, mean that the findings of Domain Group's latest research into rents is unlikely to demonstrate a long-term trend. Rents in Sydney recorded their biggest drop in 15 years in the September quarter - but as population and demand outstrips dwindling supply, that's likely to change.


Little wonder Robert Harley is proclaiming the Sydney and Melbourne property downturn is dead in today's AFR. We know the construction buying cycle means the new home market will take a while yet to catch up to improving sentiment and escalating prices in these two markets - but with CoreLogic telling us existing SYD and MLB home prices have jumped 3.5 per cent in the last quarter, it's just a matter of time.


Banks under pressure


Bank-bashing continues this week, after the big four decided not to pass on the full weight of last week's RBA official interest rate cut. One of the big topics this week has been the so-called loyalty tax: banks charging existing customers higher rates and reserving its best products for new customers. Another name given to this is the stupidity tax, subjected on those bank customers who haven't bothered to ask their bank for a better deal.


Accusations of bank profiteering are circling around renewed calls for the full list of recommendations from the financial services royal commission final report to be put into effect. The underlying issue is mortgage rate transparency - something that is almost impossible to regulate.