Household spending spree shows first sign of cracking amid interest rate fears

Aussie households’ spending spree is showing signs of cracking, as frustrated mortgage holders start the new year fearing interest rate hikes and a weak jobs market.

The Westpac-Melbourne Institute consumer sentiment index fell 1.7 per cent to 92.9 in January after tumbling 9 per cent in December, with households feeling less optimistic about the future.

A score below 100 shows households are pessimistic about the future.

Westpac head of Australian macro-forecasting Matthew Hassan says the main drag on household confidence is a changing mortgage rate outlook.

“Nearly two thirds of consumers with a view now expect mortgage rates to move higher over the next 12 months, more than double the share back in September,” he said.

The Reserve Bank of Australia next meets on February 2 to 3, with experts split on whether the central bank will hold interest rates at 3.60 per cent or lift them by at least 25 basis points to 3.85 per cent.

Should the RBA lift interest rates in February, it would be the shortest and shallowest rate-cutting cycle in three decades.

Consumers are also pessimistic about their job prospects, forecasting a short-term spike in unemployment.

This is despite the unemployment rate remaining low at 4.3 per cent and has remained unchanged for five of the last six months.

Also weighing on consumer sentiment was homebuyer sentiment, particularly in Queensland, Western Australia and South Australia due to house prices soaring in the previous 12 months.

Separate figures from Proptrack show house prices in Brisbane jumped 14.6 per cent in 2025, while Perth house prices soared 17.2 per cent and Adelaide prices rose 12.8 per cent.

People in NSW and Victoria are only “slightly pessimistic” about buying a home.

“Consumers’ house price expectations continued to cool off a bit in January,” Mr Hassan said.

“The Westpac-Melbourne Institute Index of House Price Expectations dipped another 1.4 per cent to 167.5 to be down nearly 3 per cent from November’s peak of 172.4.

“That is still very bullish though, the index up 25 per cent on a year ago.”

First sign Australia’s spending spree could slow

The pessimistic start from the Westpac-Melbourne institute consumer sentiment could be the first sign Australians will slow down their spending, acting as a forward indicator for future spending momentum.

Spending through the year until November has surged 6.3 per cent, its fastest pace in two years, the latest Australian Bureau of Statistics data shows.

According to Monday’s ABS release, Black Friday spending and major events led to a shock spending boom, up 1 per cent for the month of November alone.

This followed a 1.3 per cent rise in October, with housing spending is now up 6.3 per cent over the previous 12 months.

AMP economist My Bui said the recent weakness in consumer sentiment showed the bumper spending spree was likely already over.

“Recent household spending data has been stronger than expected, driven by stronger household finances and also discounting activity; but given the fragile confidence readings, December and January spending growth would likely be more contained,” Ms Bui said.

After holding interest rates in December, RBA governor Michele Bullock noted it was “very difficult” to read what Black Friday sales would mean for inflation and interest rates.

“We hear reports that people are still very value conscious. So they look for the sales and buy up in the sales,” she said.

“So I think people will obviously be looking where they can to get good deals and that’s great. But I’m not going to tell people whether or not to spend. That’s not my business.”