The week that was & the week ahead

The week that was       

Australian house prices are falling. According to Corelogic, Australia-wide prices have dropped a little in both November and December with decline concentrated in Sydney where prices are down in each of the last three months, by a total of 2.5 per cent. The fall in the auction clearance rate is likely to result in further price weakness in Sydney in at least the near term.

Further house price weakness seems assured through the course of 2018. Negative factors include a tightening in bank lending, an increase in the interest rate charged for investment purposes, plus a strong pipeline of new supply coming on to the market. Compounding the problems are weak household income growth and a drop in the household saving rate. With none of these factors about to change any time soon, the questions on everyone’s lips is “how much will house prices fall”, “how low will they go” and “what policy response, if any, is needed is the falls become extreme”?

Source: AMP Capital

The week ahead

A big test for the economy and the health of consumer spending will be the release of the retail trade data on Thursday. After three months of weakness, retail spending rose a tepid 0.5 per cent in October and the market consensus is for a further small rise with next week’s data. A lift in consumer spending is vital if the economy is to register stronger growth, at 3 per cent or more.

The solid rate of job creation should add to incomes and spending, but this is being offset by weak wages growth, high household debt and a quite marked softening in house prices noted above. Despite the good news in the rest of the economy, consumer spending remains the most significant downside risk as the new year kicks off.

Source: CBA