Housing: Commonwealth Bank HSI index

New data suggests fewer people will enter the housing market amid fears of more interest rate rises, but one of Australia’s top four banks insists the economy is strong.

Fewer people are planning to enter the housing market due to affordability concerns and the fear of more interest rate rises, new data has revealed.

Home buying spending fell by 21.5 per cent after gains in February and March, and is 13.1 per cent lower than in April last year, according to the Commonwealth Bank.

The CommBank Household Spending Intentions Index fell by 3.8 per cent to 112.3 in April after hitting a record high the previous month.

It was led by falls in home buying, health and fitness, and transportation spending.

However, spending was up for the travel, entertainment and retail sectors.

It comes as the Reserve Bank of Australia announced last week that interest rates would go up by 0.25 per cent, with a warning more pain was to come.

“We expect a fairly shallow hiking cycle, with further interest rate hikes in June, July, August and November 2022, and one final hike in February 2023, taking the cash rate to 1.60 per cent,” Commonwealth Bank’s senior economist, Belinda Allen, said.

Health and fitness spending fell by 14 per cent, but was still up 2.9 per cent year on year.

Transport spending fell by 8.6 per cent, mostly due to the drop in the petroleum excise and lower fuel costs, but remains 13.5 per cent higher over the year.

Travel spending hit a record high in April, up 10.6 per cent and 41 per cent on April last year. Spending was boosted for travel agents, airlines, cruise ships, tourist attractions and accommodation.

Meanwhile, there was a fall in camper and RV rentals, which indicated a change in travel plans with borders reopening.

Entertainment spending was up by six per cent last month – including concerts, theatres, meals and drinking out – but it remains 1.8 per cent lower year on year.

Retail spending increased by 0.3 per cent.

Ms Allen said Australia’s economy overall was in a strong position.

“We are seeing a post-Covid normalization of consumer spending patterns, with lower spending on categories that increased during lockdowns like health and fitness, while higher travel and entertainment reflects spending more people being out and about,” she said.

“Going forward, it will be important to watch discretionary spending categories like home buying, motor vehicles, retail and entertainment to judge the impact of interest rate rises.”

Ms Allen said households had overall accrued a “very high level of savings” during the pandemic.

“The labor market remains tight and wage growth is accelerating,” she said.

“These factors will assist families with higher mortgage repayments over coming months.”

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