CBA: House price falls “now spreading to the broader economy”

Via CBA:

2018 ended on a very weak note for the retail sector. We expected a disappointing December based on our internal data (CBA (f) ‑0.5%). So the 0.4% fall that the ABS reported today doesn’t surprise us. The market consensus, however, was centred on a flat outcome so it was a solid miss on expectations. The AUD fell at 11.30am as a result.

For the past two years there’s been an unusual quarterly pattern to the retail figures whereby a strong quarter has been followed by a soft quarter. But that pattern was broken in Q4 2018. The soft December quarter followed a poor Q3 which means that it was a very weak second half of 2018 for the retail sector. Retail is worth about a third of total household consumption. So the early indication is that total consumer spending growth will be soft in Q4 as it was in Q3.

There is now evidence that a negative wealth effect is playing out. Despite decent employment growth, a tightening labour market and a gradual lift in wages growth, spending growth has eased. The negative wealth effect is probably best evidenced in NSW. Sydney house prices fell the most in 2018 and retail trade growth in NSW has slowed to just 1.7%/yr.

By category, household goods retailing was down by 2.8% in December and has fallen through the year. Deflating dwelling prices as well as sales volumes are having a clear negative impact on this component of the retail basket (see chart opposite). There were also falls over December on clothing (‑2.4%), other* (‑0.1%) and at department stores (‑1.1%). Spending on food (+0.5%) and eating out (+1.1%) was up.

In summary, the recent data flow relating to the consumer is concerning. Spending has slowed significantly and the latest read on consumer confidence suggests that concerns around the economic outlook for households have risen. While it is true that retail has been underperforming relative to the rest of the consumer basket for a while, it’s clear that the correction in dwelling prices is now spreading to the broader economy.

The Government’s coffers have been boosted via a surge in commodity‑related revenue. And households are handing over a greater proportion of their income each year to the Government via bracket creep. As such, the case for personal income tax case is strong, particularly in light of slowing household expenditure. Attention quickly turns to the RBA at 2.30pm today.

No, no, no. The “central scenario” is for the economy to grow above trend. The lunatic RBA said so.

Comments

  1. “In summary, the recent data flow relating to the consumer is concerning. Spending has slowed significantly and the latest read on consumer confidence suggests that concerns around the economic outlook for households have risen. While it is true that retail has been underperforming relative to the rest of the consumer basket for a while, it’s clear that the correction in dwelling prices is now spreading to the broader economy.”

    Oh no! Better lower teh rates to fix thing.

    • It’s a Chinese New Year Special, $18,888, hence all the 8’s. Pity about the 1, though $88,888 would be luckier, $888,888 double dragon lucky, but probably only relevant to those in the Opal Towers!

      Buyers get a rebate of up to $18,888 on selected apartment purchases at five of Mirvac’s projects in Sydney, The Finery, Marrick and Co, Green Square, St Leonards Square and Pavilions in the Sydney Olympic Park.

      Unlike a discount to apartment prices, a rebate is an amount paid back to the buyer.

    • Divide et impera

      Gav that was me who said “people will always want their coffee”.

      I have a mate who supplies much of Melbourne – I will tentatively ask “hows business”.

  2. another good news …

    after a bad start yesterday afternoon and this morning finally some good news (RBA and this)

  3. Consistent with global experience, once that nationwide drop hits the 10% region the wheels fall off.

  4. Of course falling property prices will spread to the rest of the economy.

    Some Australians have never had so much wealth tied up in property. Others have never had so much debt and negative equity. And people are being switched from IO to P&I and having less disposable income. Given this, falling prices can’t possibly be “just a paper loss.”

    • My coffee shop guy is already complaining about his trade going down big time he says. He’ll has to lay off his foreign workers now.

      • @Forrest Gump …Ha..probably. This guy is very tight. Even come over to take your coffee before you finish to move you on or get to to order again.

      • Got an old mate who was heavily involved in the coffee shop and then Zaraffas, He reckoned the one thing he learned was ‘Don’t let the bastards sit down. They take up more expensive RE than the return you get from them

  5. Let’s hope very few of the people with one of SQM’s 330k listings patiently making mortgage and rates payments until the market meets their price is dependent on retail dollars to make those mortgage payments (or construction, banking or RE, come to think of it), or we’ll end up with a feedback loop.

  6. Currently, there are 39 used Porsche GT2s and GT3s that are less than 3 years old on the well known Aussie car sales website. This has got to be a record. Make of that what you will. From my own observations the owner demographic of this type of vehicle was overwhelmingly Chinese kids.

    • Met a punter in supa cheap, buying 5l of premium oil
      I asked what motor was that for
      for a 6 series BMW, 3 yrs old with leaks in the rocker covers
      $2600 to fix, via a non bmw agent
      Punter is holding out for a bit to see what happens??

      • I was just at Woolies, and saw a young girl say 26 ish driving a Merc AMG E 55. It got my attention as she floored it out of the car park. Came home and checked carsales and I’m guessing it was a 2005 model (k’s ?), but what a car and you’d need a lot of dosh to pay the petrol. Maybe dad’s car. The roar of the V8 was impressive.

      • proofreadersMEMBER

        When I bought the previous model 5.25 series in 2002, it came with 2 years’ warranty and a further purchasable extension of only 1 year (hardly, strong support for their product). Needless to say, a significant problem started happening near the expiry of the 3 year warranty and just past. BMW said I was on my own just after the expiry.

      • > nah, the amg merc is a hookers car

        Hey Wiley – this call is for you! Skippy, on line 2. Says something about his AMG. 😛

      • Funny you say that, a lot of young pretty things are prostituting on the side to make money. My unmarried friend (you know that show the inbetweeners? The kid Jay, he’s like that.) seems to be booking them all the time!

        It seems lots of young girls these days don’t think it’s a big deal..

      • @Gavin…my prediction is it will get worse as the economy sours. Reminiscent of Weimar-era Germany.

      • And Gavin, pretty young men too. I have several single female friends who have massage with extras!

      • Divide et impera

        @Gav
        I would say at MINIMUM 30% of girls at Uni are or have been using “sugar daddy” services which got that MP caught. It is so common it really is – minimum easily.

        I would also suggest probably as many guys are doing similar – not that sure on the gay side of it – but its massive.

        Conversationally with young women today would absolutely blow most people over the age of 35 out of the water. It really is staggering what is going on and their attitudes.

        As holier than though were things like the MeToo movement the impact on 15 -35 year old women living in Elizabeth North of Adelaide getting shattered on UDL’s and smoking ciggies with a few glass pipes is very different. VERY DIFFERENT.

        It really is absurd the fantasy characters of the noble migrant and virtuous woman that identity politics dreams up – its utter, utter garbage.

      • Surely a Beamer comes with 5 year warranty?

        Only three, but there is no requirement to have it serviced by BMW.

        I doubt you’d have much trouble getting that sort of issue fixed within 5 years if you started mumbling about “consumer rights”.

        As with most of WW’s anecdotes I suspect the reality of the situation is a bit different than described.

  7. wasabinatorMEMBER

    Honestly what do these idiots expect after they allowed the economy to be hollowed out and the kitchen sink to go into bricks and mortar. Smooth transition from mining to construction, my arse!

    • It’s closed? I’ll happily sign it. She can stick to Twitter where they seem to allow that behavior but don’t like #LearnToCode.

      • I realised there was another similar petition (and didn’t want to split the vote). If you search ‘ABC Clementine Ford’ it should come up. Cheers for your support.

  8. Anybody noticed that auctions are back in vogue again.Im looking at homes that have been on the market for many months are suddenly for auction.The cockroaches have managed to con the sellers that auction clearance rates are on the up.

    • I looked at 3 places over the Christmas break and 2 are now suddenly under offer. It’s as if the market has turned again and it’s back on the up.

      The third place is the 1 I’m interested in, but vendors expect $950k, it sold Jan 2017 for $770k. Problem is the other 2 properties were similar and similar price. So it looks like someone will pay it … Despite my hopes they would be forced to meet the market, the market is up in that area.

      • wasabinatorMEMBER

        Similar observations where I was looking. Have been waiting for sellers to give in and now multiple properties sold. Then another one I was going to go for at auction has consistently had dozens of people rocking up. Passing on that, it will go for a lot.

      • Nothing has changed in regards to lending constraints if anything it’s getting worse.The auction season hasn’t really started yet once it begins in force again we will see lower clearance rates and a bigger build up of stock on the market.House prices are dropping like a stone but if you read the Herald Sun you’d be convinced the boom is back . The the cockroaches will do anything to con the public for their own self gain.

      • I agree prices are dropping, but not the properties I’m looking at. They seem to be holding up, albeit only getting the price at the bottom of their quoted ranges.

      • At least on Sydney’s north shore, some (not all) good properties are still selling at similar prices.
        However, once you have one which is looking tired, or needs some work, then that is where the discounts are.
        Maybe it is similar where you are looking?

  9. @Sign The Petition
    ABC tying to fill the void that Buzzfeed didn’t leave. They all need to learn to code.

  10. Remember there’s at least two whole generations out there that were raised in the Aussie property cult. Regardless of the evidence, those deeply held beliefs about property always going up will take a while to pop. Prepare for the stages of grief on a massive scale

    • “Ze vombat -= love it.
      Yes!!!! I’ve stated, over and over again in these pages that, in contrast to MB’s constant advocation of lower interest rates, “”Ïf you want this thing dead you have to kill it “”

    • I went to the usual holiday spot and was doing a little evening beach fishing with some random vacationer and we got onto the topic of real estate. I mentioned the massive number of for sale signs in the area (seemed like about 1 in 5 properties), yet sellers were still holding out at inflated prices from years ago (Western Australia). No amount of logic could convince the guy that prices are going to fall. His cult belief was firmly indoctrinated, that prices will only rise. I gave up.