From CBA senior economist, Gareth Aird, comes an interesting analysis on the link between house prices and consumer confidence, which now appears broken:
Between 2005 and mid-2013 there was a very good correlation between dwelling prices and sentiment (chart 1). Price rises and falls tended to go hand in hand with consumer optimism and pessimism. But that relationship has since broken down. Since late-2013 the stunning rise in property prices has failed to generate any euphoria amongst consumers. Of course there are a lot of things that go into the melting pot that determines how households feel. But at the risk of oversimplifying things, it looks like strongly rising dwelling prices have done little to generate optimism amongst consumers. We suspect that is because the lift in dwelling prices has not been driven by higher wages growth. And in our view, income matters far more to households than optically strengthened balance sheets courtesy of rising dwelling prices. Policymakers should focus more on measures that boost household income rather than those that prop up dwelling prices…
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
