The Westpac-Melbourne Institute Consumer Sentiment Index rose 2.6% in March, slightly below the December level which was a 10-year high.

The main factors driving the index were improving economic conditions and prospects, both domestically and abroad, particularly as they relate to the labour market, according to Westpac chief economist, Bill Evans.

“Australia’s success in containing Covid-19, the promise of vaccine rollouts bringing an end to the pandemic, and support from stimulatory government policies have all contributed to the sustained lift,” he said. However, the survey did show some caution in the housing market.

All components of the index were higher in March led by confidence in the economic outlook and assessments of family finances. The ‘time to buy a major household item’ sub-index increased 3.7%.

“Confidence in the labour market improved with the index seeing the best readings in nearly a decade, emphasising the level of confidence around the outlook for jobs,” Evans said.

However, tensions in the housing market suggest evidence of an emerging squeeze on affordability from rising prices. “While optimism around house prices is surging, respondents are becoming more hesitant around the attractiveness of buying and remain wary about real estate as an investment option, with the ‘time to buy a dwelling’ index slipping a further 3.6% , the fourth consecutive fall, down 11.9% from the peak in November.

“The decline suggests resurgent prices are already starting to curb buyer interest and we may see some easing in the recent surge in demand from owner occupiers, particularly from first home buyers who are the most sensitive to affordability,” he said.

“House price expectations remain buoyant in NSW, Queensland and WA, while expectations eased in Victoria, which might still be playing catch-up as the state economy continues to reopen.”