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By Joseph Ballota

5 reasons Aussie households are more resilient than you think

key takeaways

Key takeaways

The housing market in Australia has shown signs of recovery, with consecutive months of gains and stabilizing housing values. Higher auction clearance rates and improved buyer sentiment indicate a positive shift in the market.

The household sector is in solid shape, and any weakness in consumption may reflect discretionary spending returning to normal levels rather than widespread retrenchment. The expectation of a lift in real incomes toward the end of the year indicates a potential pick-up in household spending in 2024, even without rate cuts.

Finances across Australian households remain resilient in 2023, even despite the rising cost of living and pressure on mortgage holders as interest rates continue to climb.

After falling 9.1% in the 10 months to February 2023, it is becoming increasingly clear the housing market has moved through an inflection point, posting a number of consecutive months of gains.

Not only are we seeing housing values stabilising nationwide, but other indicators confirm the positive shift such as higher auction clearance rates and improved buyer sentiment.

And even though more interest rate hikes are expected on the horizon, ANZ’s latest report on Australian households points to data that shows that they are in excellent shape, with incomes significantly more resilient than we realise.

5 reasons why household's incomes are resilient from a downturn

1. The starting point for real household incomes heading into this interest rate hiking cycle was elevated

ANZ’s data shows that the net income of employees has risen sharply over the past year, at a rate exceeding expectations.

ANZ says this reflects both the growth in employment (being hours worked) and wages.

Elevated Level Of Real Household Incomes


2. Looking at the level of real income presents a very different picture of developments over the past year

ANZ’s data showing the change in real household disposable income over the past year paints a recessionary picture because of the significant dip.

Real Gross Household Disposable Income

BUT… when we look at the data around the level of real household disposable income versus expectation, it shows that all that has happened is income has reverted to the pre-COVID trend, suggesting that the decline isn’t as severe as it looks on face value, but rather a reversion to the norm.

Real Gross Household Disposable Income 1

3. The longer-term trend in real wages is also more positive than you might think.

Data on the Wage Price Index (WPI) which measures wages growth in the same job to the same worker, versus national accounts which measure changes nationwide, paint a more positive picture than we realise.

A structural change towards higher paying jobs (like there has been in the past few years), for example, is captured in the broader wages bill but not in the WPI.

Even though wages growth on either measure is softer than a -3.5% unemployment rate might have suggested, ANZ suggests.

National Accounts Based Measures Vs Wpi

4. Savings buffers remain untouched – in aggregate

Overall, household deposits increased in 2022, suggesting that aggregate ‘cash buffers’ have not been run down.

The household saving rate remains positive and just a little below pre-pandemic levels, ANZ’s data reveals.

Household Saving Rate

5. Some of the factors that have negatively impacted real incomes over the past year will likely peak this year (interest rates) or have already started to moderate (inflation)

Australia’s inflation rate eased during the first three months of 2023 with a quarterly increase of 7% marking the lowest level since the end of 2021, according to the ABS.

It suggests that inflation around the world has peaked, which should make it easier for the Reserve Bank of Australia (RBA) to get inflation under control in Australia.

And even though the RBA hiked its cash rate for the 11th time in 12 months in May, to 3.85%, the financial markets are betting that official interest rates will fall by the end of the 2023 calendar year.

What this means

ANZ predicts that if the household sector is in solid shape, then weakness in consumption this year could reflect discretionary spending coming back to more normal levels, not a ‘forced’ across-the-board retrenchment.

“A lift in real incomes toward the end of this year flags a 2024 pick-up in household spending, even without rate cuts.”

The bottom line…

The pieces of the property puzzle are falling into place for a reset of our housing markets this year.

Australia’s economy is recovering faster than most expected, unemployment is low and new jobs are being created, consumer and business confidence is rising and there are more buyers out there than there are good properties for sale.

2023 is going to be a great year for property as we move through this inflection point into the next phase of the property cycle.

About Joseph Ballota Joseph is a Property Coach who put hundreds of people on the road towards wiping away their mortgage in under 5 years through expert Property Investment Plans.
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