Household wealth is booming: What this means

A great piece by respected economist https://thekouk.com/

$500,000,000,000

In other words, half a trillion dollars.

That is approximately the amount Australian household wealth has increased since the start of July 2019, with house prices surging, the Australian stock market moving higher, and savings increasing.

The bulk of the gains have occurred via rising house prices, which according to CoreLogic, are up over 5 per cent in less than five months. This move-in house prices has added around $360 billion to the value of housing and is driving the rebound in wealth. 

Earlier this year, RBA researchers Diego May, Gabriela Nodari and Daniel Rees found that:

“When wealth increases, Australian households consume more. Spending on durable goods, like motor vehicles, and discretionary goods, such as recreation, appears to be most responsive to changes in household wealth”.

We saw this, in the reverse, in the period from the middle of 2017 to the middle of 2019 when Australia-wide house prices fell by 10 per cent, crunching wealth levels. It was no surprise that during this period, household spending growth slumped. The retail sales component fell to its weakest since the early 1990s recession. Consumer spending and confidence was not helped by the coincident weakness in wages growth and the policy mistake of the RBA which refused to cut official interest rates, even though the economy was mired in low inflation, low growth and falling wealth climate.

Thankfully, common sense has since prevailed at the RBA and it has cut interest rates three times since June.

It adds to the scenario where 2020 is looking like a better year for the economy with bottom line GDP growth set to hit 3 per cent in the second half of the year.  If the wealth effects build further over that time and business investment and infrastructure spending continue to lift, the economy in 2020 just might register its strongest growth rate in a decade.

This is on the back of REA group showing Sydney’s housing market is leading the way out of the doldrums, with price growth and volumes in harbourside suburbs on the up.

The company’s unique search engine and on-the-ground experience in a series of key markets show Sydney is beating Melbourne, which had been expected to be the first comeback market.

Supply versus demand is also being demonstrated through high auction clearance rates.

For much of the latter half of the year, Sydney has achieved a higher rate off a lower base when compared with Melbourne. While the number of homes available at auction in Melbourne sat at 994 last weekend and at 646 in Sydney, clearance rates hit 73 per cent and 78 per cent respectively.

Perth on the up

On the opposite side of the country, Perth is showing strong potential as sentiment rapidly changes. A rise in search is unlikely to meet demand as the number of homes available falls.

“After NSW, Perth is seeing the biggest imbalance between people looking to buy and the amount of property currently available,” Ms Conisbee said.

“Not surprisingly, it is Perth inner that is seeing the highest views per listing at a small area level.

“The difference between this part of Perth and the remainder of the city is stark. Views per listing are more than triple in Perth inner compared to most middle and outer suburban areas.”

Property Club is at the forefront of the best properties in the best areas, best placed for this capital growth upswing - make contact with your Property Mentor or hit enquiries@propertyclub.com.au for further information on the great properties available for Club members!

Troy Gunasekera

National Manager

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