Most Aussies think mortgage rates will increase this year, which in turn, appears to be discouraging people from buying property for the time being, according to the latest Westpac-MI Consumer Sentiment Survey for January.

Sixty percent of respondents said they expect rates to be higher in 12 months, well above the 37% who held this view just six months ago. Of the remaining 40% of respondents, 35% expect rates to be steady, while 5% expect further rate cuts.

The release of the January survey coincides with CBA’s decision to increase mortgage rates on interest-only investor loans starting on April 3.

This shift in outlook towards interest rates appears to be weighing on demand, at least among those who participated in the survey, said Matthew Hassan, senior economist at Westpac.

“Concerns about potential interest rate increases may have impacted sentiment towards housing,” Hassan said. “The ‘time to buy a dwelling’ index fell sharply, declining 7.8%. The index is now at its lowest level since May 2010, when the RBA was near the end of its last tightening cycle. Victoria, Queensland and Western Australia all recorded 10%-plus declines in the month, although the New South Wales index remains the weakest across the states.”

This broad-based drop points to a shaky start to the New Year for Australia’s housing markets.

Despite this pessimism, the majority of respondents still expect prices to increase, particularly in the boom markets of New South Wales and Victoria. These two states saw prices in their capitals surge by more than 13% last year, according to data from CoreLogic.

“Over 64% of consumers expect price gains over the next 12 months compared to just 39% this time last year,” Hassan said. “In New South Wales and Victoria, where market conditions and price gains have been strongest, 70–75% of consumers expect prices to rise further in 2017 with one in ten expecting double-digit price growth.”