Australian consumers would seem to be a bit less confident than business, judging by the results of the latest Westpac/Melbourne Institute survey of consumer sentiment, released this morning, despite first home buyers taking up some of the economic slack.

The Westpac survey showed a small fall in confidence, for the second month in a row, with the three interest rate rises from the Reserve Bank blamed.

But omitted from commentary was the fact that the debate over Westpac’s 0.45% rate rise last week fell in the survey period and rapidly overtook the debate over the decision by the central bank to lift rates for a record third month in a row.

Westpac, along with the Melbourne Institute, run the index of consumer sentiment and it could be argued that the bank’s rate rise had some part of the 3.8% fall in the index to a still solid 113.8 points in December, from 118.3 points in November.

Despite the second monthly drop, the index remains 23.7% from a year ago.

The difference with the NAB survey of business was that it was conducted in November before the third rate rise from the December 1 Reserve Bank board meeting, while the consumer sentiment survey was taken from November 30, the day before the rate rise decision, to December 6, well after Westpac, and then two days later, the ANZ and CBA lifted their housing rates.

That meant it also included the period of criticism and intense public comment about the move by Westpac to lift its standard variable home loan rate by 0.45%, compared with the RBA increase of 0.25%. Higher than the RBA rate rises were also announced on Friday by the CBA and ANZ, while the NAB increased its rate by 0.25% (and appears to some consumers not to have moved rates at all, such as has been the concentration on Westpac).

So while the RBA’s third rate rise probably had an impact on confidence, it can be argued that Westpac had a substantial negative impact as well with its big rate rise.

But Westpac chief economist Bill Evans said in a statement that the fall in the index was a “surprisingly modest” following the recent rate rises.

“We expected that there was a real possibility that the index would fall much more sharply than the 3.8% which it has registered,” Mr Evans said in a statement this morning.

“Note that after the RBA tightened by 25 basis points in March 2005 the variable mortgage rate was increased to 7.3 per cent from 7.05 per cent and the index fell by a massive 15.5 per cent.

“Each subsequent increase in mortgage rates over the course of 2006 and 2007 generally saw “double digit” falls in the index.”

Mr Evans said households were holding greater debt relative to their incomes and higher interest rates would have a greater impact.

“A closer inspection of the components of the index shows that those folks holding a mortgage have responded much more negatively to the rate increases than those who are not holding a mortgage,” he said.

“Confidence amongst those with a mortgage fell by 8.9 per cent while confidence of those who are renting actually increased by 1.6 per cent while those wholly owning their homes registered a fall of 4.1 per cent.”

“We have little doubt that we are nearing a point where the level of the variable mortgage rate will start to elicit a much more negative response across all households but the evidence from this survey is that we are not there yet,” he said.

Meanwhile, the October housing finance figures, released by the Australian Bureau of Statistics this morning, show a 1.4% fall in the” seasonally adjusted value of dwelling finance commitments excluding alterations and additions.”

Sounds like another dull month where nothing happened. It was down from the reported 4.8% rise in September.

But the reality is that the action in housing is in first home buyers sector, thanks to the Federal Government’s increased grants (supported by the states), announced 13 months ago, stimulating demand for new building.

The real story from the stats yesterday is that finance for new owner occupied home building hit a 15 year high in October.

“The number of finance commitments for the construction of dwellings for owner occupation (trend) rose 3.9% in October 2009 compared with September 2009, following an increase of 4.3% in September 2009.

“The seasonally adjusted series rose 9.2% to 8,016, the highest level since August 1994.”

That’s actually up on the 8.0% growth rate in September from August.