After months of uncertainty and a worsening economy, all the latest signs are pointing towards an economic recovery for Australia. That should be good news for the housing market, which had been affected by poor economic sentiment.

A continued stretch of gloomy news has seemingly ended, at least for now. We've just heard that we've missed a recession (so far), unemployment has remained under 6%, the Aussie dollar is stronger than a few months ago, and interest rates remain at very attractive low levels for borrowers.

The latest good news has been the Westpac-Melbourne Institute index of consumer confidence, which rose by a near-record 12.7% in June to 100.1 points. With 100 points as a middle ground, the latest figure means that there are ever so slightly more optimists than pessimists for the first time since last year, when the global credit crisis began to pull down on Australia's economy and confidence.

There are also signs the property market has stabilised, as investors and owner occupiers have begun creeping back into the market.

"Consumer sentiment has a strong correlation with national sales volumes - meaning that when sentiment is high, sales volume tend to increase and when sentiment falls, as it has over the last year or so, sales volumes also fall,” RP Data Senior Research Analyst Cameron Kusher said. 

The number of new housing loans are at a 14-month high, lifting by 0.9% in April, and loans for new construction rose by 1.3% to reach a seven year high, according to Commonwealth Securities (CommSec).

Even with tighter lending criteria, loan sizes are increasing. The average loan stood at $264,700, up 11.9% on a year ago, said CommSec in its June report.

"The latest round of housing finance figures has reinforced our view that the housing sector will be the growth driver over the next year," said Savanth Sebastian, economist with CommSec. "A sustained improvement in activity, a significant increase in loan size, and importantly a substantial jump in construction of new dwellings are all encouraging signs that rate cuts and government stimulus are working their magic."


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