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Consumer confidence and refinancing on the rise

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The latest figures on the housing sector released by the Bureau of Statistics show that housing activity remains solid, with the value of loans by owner-occupiers and investors to build new homes rising by 1.7 per cent in March.

In addition, the number of refinancing transactions rose by eight per cent in March despite the 0.09 per cent fall in the number of home loans. The proportion of fixed rate loans jumped to 14.9 per cent as well—its highest reading in 16 months.

"The intense competition by lenders has resulted in home owners shopping around for the best rates on offer and more are locking in those cheaper rates," said CommSec's Savanth Sebastian. "The lift in refinancing will provide additional savings to household budgets—injecting fresh spending power into the economy." Because of this, it is highly possible that the latest interest rate cut will lead to more refinancing.

As for consumer confidence, the Westpac/Melbourne Institute index rose by 8.5 per cent in May to 103.2 after sliding by four per cent in April. This is higher by 0.8 per cent compared to a year ago. While these consumer confidence levels are healthy, Sebastian says that it is unlikely to translate to a substantial lift in spending. The weekly consumer confidence survey will provide a better picture of the shifting landscape.

"It's important not to over-think consumer confidence," Sebastian concluded. "The Aussie dollars, interest rates, petrol prices, home prices, and the job market are the key factors determining whether someone is positive or negative on supposedly 'economic' issues."

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