November’s consumer confidence surge completely reversed in December as rate cut expectations turned to hike fears
What’s happening: Consumer sentiment fell 9% in December, completely reversing November’s move into positive territory for the first time in three years.
Why this matters: The dramatic reversal demonstrates how vulnerable consumer confidence remains to interest rate signals, even when the economy is performing better than expected. This sensitivity affects spending patterns, property markets and business investment decisions heading into 2025.
Australian consumer confidence experienced a dramatic reversal in December, with sentiment plunging back into negative territory after briefly touching its highest level in seven years.
Overall sentiment fell 9% to net negative levels, completely erasing November’s surge to the first positive reading in more than three years. The sharp decline highlights just how sensitive Australian households remain to interest rate expectations, even when stronger economic data suggests the nation is performing better than anticipated.
Oliver Hume Chief Economist Matt Bell described the swift turnaround in stark terms. “Last month’s big move by the Westpac-Melbourne Institute Consumer Sentiment survey into positive territory was completely reversed in December. Apparently, all we needed was a change in view about rate cuts to rate hikes, and everyone is grumpier. Even when it’s because the economy is running a bit hotter than everyone thought,” Bell said.
The sentiment collapse was driven primarily by shifting views on mortgage rate expectations, the economic outlook and family finances, painting a picture of households reassessing their financial positions as rate relief expectations evaporated.
Positive Reading Vanishes
November’s optimism now appears to have been short-lived. The previous month had delivered the highest overall reading in seven years, excluding COVID disruptions, marking what many hoped would be a turning point in consumer mood after an extended period of pessimism.
That hope disappeared almost overnight as speculation mounted that the Reserve Bank of Australia might raise rates rather than cut them in 2026. The shift reflected stronger than expected economic data, including robust employment figures and persistent inflation pressures.
Bell noted that both homeowners and renters shared the negative reaction to potential rate rises, demonstrating the broad-based nature of the sentiment shift. The changing rate outlook affected views across multiple dimensions, including assessments of the economic outlook and personal financial circumstances.
Dwelling Index Crashes
The housing market bore the brunt of the sentiment collapse. The Time to Buy a Dwelling index fell nearly 11% in December, pushing it almost 30 points below its long-term average.
The sharp decline reflects growing concern among potential homebuyers that higher interest rates could persist, or even increase, making property ownership more expensive and less attainable. For those already considering purchases, the shifting rate expectations have prompted many to reconsider their timing or capacity to buy.
Interestingly, house price expectations hardly moved despite the deteriorating buyer sentiment. This suggests consumers recognise that while affordability concerns are mounting, underlying supply constraints and demand fundamentals continue to support property values.
The disconnect between buying appetite and price expectations reveals a market where potential purchasers feel increasingly priced out, even as they acknowledge prices are unlikely to fall significantly.
Land Sales Hold Strong
Despite the broader sentiment decline, not all segments of the property market are experiencing the same weakness. Bell highlighted a notable divergence between land sales and established housing markets.
“Land sales performed well over the last few months as uncertainty has increased over the direction of rates, but we have seen auction clearance rates easing across the country in response, implying easing established market growth,” he said.
The resilience in land sales suggests buyers seeking to build new homes are taking a longer-term view, potentially seeing value in locking in land purchases now despite rate uncertainty. New home construction also benefits from various government incentives and grants that don’t apply to established properties.
In contrast, auction clearance rates have been trending downward across capital cities, indicating softening momentum in established housing markets. The easing clearance rates suggest vendors are finding it harder to achieve their desired prices, while buyers are becoming more selective and cautious.
This divergence creates a two-speed property market, with new development opportunities maintaining appeal while established home sales face headwinds from weakening buyer confidence and tighter financial conditions.
Rate Hike Fears Spread
The December data reveals a significant shift in how consumers view the interest rate outlook. After months of building hope for rate cuts in 2025 and 2026, households now face the possibility of rates remaining elevated or even increasing.
Bell emphasised that the previous month’s apparent resilience to changing rate expectations proved illusory.
“Last month it looked like consumers had shrugged this changing rates outlook off, but [the data] shows that all consumers, whether owning or renting, don’t like the idea of rate rises in 2026,” he said.
The broad-based nature of the concern is particularly significant. Renters, who don’t directly face mortgage rate increases, still showed negative reactions to the shifting outlook. This reflects the reality that higher rates affect the entire economy through their impact on business costs, employment conditions and overall economic activity.
For small and medium businesses, the sentiment data signals continued caution from consumers heading into 2025. Retail spending, hospitality patronage and discretionary purchases are all likely to remain subdued while households grapple with the prospect of higher borrowing costs.
The dramatic December reversal serves as a reminder that consumer confidence remains fragile more than two years after the rate hiking cycle began. The swift shift from optimism to pessimism demonstrates how quickly sentiment can change when rate expectations are revised.
For the Reserve Bank, the data provides evidence that monetary policy continues to weigh on consumer demand. However, the fact that sentiment deteriorated precisely because the economy is running hotter than expected creates a challenging dynamic for policymakers.
The coming months will be crucial in determining whether the December pessimism proves justified. If inflation remains elevated and rate rises materialise, consumer confidence could deteriorate further. Conversely, if economic data moderates and rate cut prospects return, sentiment could recover as quickly as it collapsed.
For now, Australian households are closing out 2025 in a decidedly grumpy mood, with the brief November optimism already a distant memory. The consensus view of imminent rate relief has been replaced by uncertainty and concern, setting up a cautious start to 2026 for consumers and businesses alike. Property markets, retail spending and business investment decisions will all be shaped by how the rate outlook evolves in the months ahead. The December sentiment data makes clear that Australians are watching closely, and their mood will shift rapidly based on what they see.
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