Confidence in Australian real estate has dropped to its weakest level in over 40 years, with just 10.5 per cent of people now seeing property as the wisest place to put savings.

Overall consumer sentiment ticked 2.5 per cent higher in September but pessimists outnumber optimists for the tenth consecutive month, despite the Australian economy now notching up 26 years of unbroken GDP growth, according to the Westpac-Melbourne Institute consumer sentiment report for September.

Views on housing slipped to the lowest level since the index began amid concerns of a cooling market, rising household costs and stagnant wages growth.

The “time to buy a dwelling” sub-index grew by 0.8 per cent in the month but has slumped almost 13 per cent over the year, while real estate is now viewed to be the wisest place for savings by only one tenth of the country – 9 per cent nominated shares and 23.5 per cent favoured paying down debt.

The news will deal a blow to Reserve Bank optimism, with the board last week opting to leave interest rates on hold at a record-low 1.5 per cent while offering confidence that the economy will break out of its low-wage and low-inflation rut.

Weak consumer sentiment points to a soft public spending outlook and downbeat residential construction levels – dashing hopes of RBA rate hikes in 2018, according to Westpac chief economist Bill Evans.

“While those commentators favouring rate hikes next year point to record business conditions we are starting to see a considerable gap open up between business conditions and business confidence,” Mr Evans said.

“Persistent weak consumer sentiment, consistent with weak consumer demand, may be worrying businesses around the sustainability of current strong conditions.”

Westpac-Melbourne Institute Consumer Sentiment Index.

CommSec economists also see no change to official interest rates “in the foreseeable future”, with consumers remaining overwhelmingly conservative – despite Australia having now recorded the longest economist expansion by a developed nation.

“Aussie consumers still aren’t feeling the love,” said CommSec chief economist Craig James.

“The economy is expanding, business conditions are at decade highs but inflation is well contained. And, based on today’s data, the RBA needs to keep a watch on a cooling property market.”

Australia’s record household debt-load continues to weigh on the minds of policymakers, but the latest consumer sentiment figures indicate that concern is now increasingly shared by average Australians.

The national debt-to-income ratio currently sat at 190 per cent at the end of 2016, which ranks as the fourth-highest in the world after Norway, the Netherlands and Denmark, according to OECD data.