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Will falling house prices trigger the next Aussie recession?
House prices are falling, auction clearance rates continue to drop and there is a such sharp lift in the number of properties for sale that, for the moment, no one is willing to buy at the given asking price.
Potential house buyers who have held off taking the plunge in the hope of falling prices seem to be staying away, perhaps hoping for further price falls. But also influential factors forcing buyers away is the extra difficulty getting loans approved as banks tighten credit standards, then there are concerns about job security and associated awareness of probable cash flow difficulties given the weakness in wages growth. It is remarkably obvious that house prices will continue to fall and this poses a range of risks to the economy.
Research from a range of analysts, including at the Reserve Bank of Australia, show a direct link between changes in housing wealth and consumer spending. This means that when wealth is increasing on the back of rising house prices, consumer spending is stronger.
This was evident in Sydney and Melbourne, in particular, when house prices in those two cities were booming in the two or three years up to the middle to latter part of 2017. Retail spending was also strong. Looking at the downside, in Perth where house prices have fallen by more than 10 per cent since early 2015, consumer spending has been particularly weak.
If the flow of punter’s money is any guide, Labor are in for a very rough time on Sublime-Saturday on 28 July when there are five by-elections around Australia.
In the three seats where the results are not a forgone conclusion, the flow of money on Liberal candidates over the last few days has been very strong.
The Liberal Party are now favourites to win Braddon and Longman and in Mayo, Liberal candidate Georgina Downer has firmed from $4.20 into $2.75.
If the punters are right, Sublime-Saturday would see Labor lose Braddon and Longman and could see Liberal’s sneak back in Mayo.
If so, it would be odds on that Prime Minister Turnbull would go to the polls as soon as possible, not only to take advantage of the by-election fallout, but, from a different angle, go before the housing market and the economy really hit the wall, probably in late 2018 or 2019.