House price boom won’t rescue economy

The Australian’s economics correspondent, Patrick Commins, is holding out hope that the house price boom will engineer a economic recovery:

Australians are taking up new mortgages at the fastest pace in more than three years, encouraged by a sharp recovery in property prices and stoking hopes for a recovery in spending and housing construction in 2020…

“Stronger borrowing is lifting dwelling prices and means positive wealth effects may come back into play and support consumer spending,” [CBA economist Kristina Clifton] said…

Lower interest rates, the lift in dwelling prices and strong population growth were also “underpinning a recovery in residential building approvals,” Ms Clifton said — a leading indicator for construction activity that was hit hard by the property slump…

Patrick Commins should curb his enthusiasm.

While new mortgage demand and dwelling values are booming, overall personal and mortgage credit growth is falling, suggesting that consumers are shutting their wallets:

This is also reflected in strong housing equity injection:

As a result, consumer spending remains stillborn, as reflected in crashing new car sales:

And anaemic retail sales:

Sure, dwelling approvals registered a modest pick-up in December following months of heavy falls:

However, this nascent rebound is likely to be short-lived as the coronavirus snuffs out Chinese demand, in addition to hammering the tourism and education sectors more broadly.

In short, don’t expect the house price boom to generate an economic recovery in 2020. The weak conditions are set to continue.

Leith van Onselen
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