20 Perth suburbs that have already surpassed expert predictions
The REIWA’s earlier forecasts for Perth’s property market are on track to be exceeded, with 20 suburbs recording bet...
Australians are clearly nervous about spending money.
According to Australian Bureau of Statistics data, annual retail sales have grown by just 2 per cent in the past year.
The good news is that the household savings ratio has increased to 11.5 per cent from zero just six years ago, but this offers little comfort to retailers looking to sell their products today.
So, why are consumers so cautious? AMP’s chief economist Shane Oliver believes confidence will return – just not in the near future.
There are several factors at play behind the new found consumer caution, he says. The first is an attitudinal change towards debt and savings.
“From the mid-1980s until about five years ago, consumer spending was supercharged by rising household debt levels and a fall in the household savings rate from around 15 per cent to zero,” he says.
“Debt was in, saving was out.
“This was driven by a combination of easy credit, falling interest rates that made debt more affordable, younger generations becoming more comfortable with debt, and rapidly rising wealth levels that made active savings seemingly less necessary.”
This trend has since been reversed, with the global financial crisis a long overdue reminder that debt is risky. Savings are back en vogue, and the rate at which household debt increases is now slowing.
Secondly, the debt that households have already built up has left them very vulnerable to higher interest rates.
This is particularly so for those who entered the housing market on the back of the first home owners’ boosts and generational lows in mortgage rates in late 2008 and 2009.
The prospect of higher interest rates has made consumers only more cautious.
Thirdly, the proportion of the household budget allocated to necessities such as power and water bills, insurance and health is rising rapidly.
Housing Industry Association chief economist Harley Dale predicts the situation will change: “People are cautious at the moment, but this caution won’t last forever,” he says.
However, Genworth Financial’s mortgage trends report released earlier this year found the rising cost of living was deterring Australians from jumping onto the property ladder. This is evident in falling auction clearance rates.
Data from the Real Estate Institute of Australia show clearance rates have slumped to just 60 per cent from 75 per cent this time last year.
So for now, it seems Australians feel happier and safer saving their money rather than investing it in property.
That said, we’re now firmly in a buyer’s market – which means a better selection for buyers as well as greater scope for negotiation on price. Matched with the bank’s increased appetite to lend, and at higher LVRs, it’s a good time to be shopping for property.