Westpac shows today that there is still a lot of downside left in the house price correction:
Our last Housing Pulse showed buyer sentiment continuing to stabilise but a further weakening in housing markets suggested other factors were driving things – a tightening in lending standards in particular. Three months on its a similar story around buyer sentiment overall but conditions across the major markets have weakened again with turnover dropping to very low levels and price corrections deepening in Sydney, Melbourne and Perth.
The Westpac Housing Consumer Sentiment Index* has shown little change, improving slightly over the last 3mths but consistent with the signal earlier in the year pointing to stabilising activity. This is clearly implying that other factors affecting credit availability, such as tightening loan criteria and falling investor activity, are behind the current market weakening. For the record, the main driver of the sentiment lift is improved reads on ‘time to buy’ and jobs, partially offset by a more downbeat view on prices.
Credit is being rationed in some respect. But Westpac is overly optimistic on any turning point even within the market. The “time to buy” index is clearly still well below previous peaks. Or, put another way, prices need to drop much further to appear like value to punters.
UBS has the truth of it:
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We found the lag of falling home prices to spending is typically 6+ months, so the impact is yet to come.
We find evidence in the Household Income & Wealth Distribution data that the drop in the savings rate to a post GFC low was driven by the richest 40% of households, & older households aged 55+ (often the same). Indeed in recent years there was a tight relationship between wealth & savings for richer & older households, with average spending growth of older households at 5%, over double the rest. This suggests a 10% fall in home prices alone could cut 2% from nominal consumption in coming years.
Meanwhile, we also analysed new saving data by State. We found more evidence of a wealth effect from rising house prices to consumption. In recent years there was a price boom, led mainly by Sydney & Melbourne.
Overall, this deep dive increased our conviction that a household wealth effect will see consumption moderate.
Honestly, the only mystery left is why UBS doesn’t have rate cuts in its outlook.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
We find evidence in the Household Income & Wealth Distribution data that the drop in the savings rate to a post GFC low was driven by the richest 40% of households, & older households aged 55+ (often the same). Indeed in recent years there was a tight relationship between wealth & savings for richer & older households, with average spending growth of older households at 5%, over double the rest. This suggests a 10% fall in home prices alone could cut 2% from nominal consumption in coming years.
