The fall in the property market risks affecting consumer demand on the eve of Christmas sales, traditionally the peak sales period for retailers, according to analysis by investment bank Morgan Stanley.
“The broader impact has been limited to date but we see households deleveraging as likely to restrain spending growth into 2019,” the report into the local property market warns.
Melbourne has caught up with the earlier weakness in Perth and Sydney with clearance rates dipping below 50 per cent at the end of the spring sales season, traditionally the busiest time of the year for sales, its analysis shows.
A combination of falling prices, weak sentiment, slow population growth, flat wages and record-high household debt are spilling into the broader economy as a “meaningful headwind” for consumer spending and bank revenues.
This has not been offset by improved affordability and government incentives attracting more first-time home buyers back into the market.
But strong global growth and state and federal public spending are expected to prevent the economy from sliding into a recession, the bank concludes.
“With housing expectations deteriorating, the question becomes the magnitude of the broader economic impact,” its analysis states. “We see the decline in house prices as a key catalyst for a deteriorating cycle,” it warns.
Australia at risk
In a separate report this week the bank warned that Australia is the developed economy most at risk from soaring household debt, slow credit growth and falling property prices.
The nation’s household debt has nudged out Canada and Sweden to top the poll as the G10 economy most in danger of a downturn from excessive household debt, including mortgage lending, static wages and “potential further macroprudential and structural/tax policy” changes, the report warns.
“These economies face a crucial juncture as housing markets weaken, forcing a reappraisal of leverage and wealth, and global financial conditions tighten, increasing the consumption drage from debt service and rising savings,” according to an analysis of debt burdens faced by G10 economies.
The bank warns household debt in the 10 largest developed economies has jumped from about 98 per cent to 160 per cent in the past 20 years.
Housing prices slid about 0.6 per cent in October and are down nearly 5 per cent for the year as market sentiment and auction clearance rates in Melbourne and Sydney continue to fall sharply.
Brisbane remains the most resilient with prices flat-lining.
The outlook remains subdued because affordability is still a problem, despite some price easing, tight credit, over-supply and nervousness about impact of a future Labor Government on investor perks.
An apartment over-supply – and pipeline of new apartments coming onto the market – is increasing pressure on sellers.
The bank predicts a peak to trough decline in national house prices of between 10 to 15 per cent. Other market pundits are predicting declines of 20 per cent, or more.
The number of people who believe real estate is the wisest investment has slumped to near-record lows and investor and owner-occupier lending continues to decline, its analysis reveals.
Despite these setbacks the number of households with multiple investment properties “has grown strongly”, which is likely to reflect sales before the recent downturn and lenders tightening the screws on investors and self-managed super funds buying dwellings.
For example, the number of households with more than one property has risen to nearly 1.5 million with about 20,000 owning six or more.
Retail spending has been unexpectedly weak in recent months because of growing consumer concerns about falling house prices and weak wages growth, according to government analysis.
There is a direct correlation between house sales and sale of domestic products ranging from sofas to kitchenware.
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