Rising property values are leading to a Wealth Effect | Property Insiders [VIDEO]

An interesting side-effect of rising property prices around Australia is the fact that luxury car sales are also booming.

This is caused by what is called the Wealth Effect – we feel good, we feel wealthy when the value of our home increases.

In fact, the Reserve Bank counts on this wealth effect of rising house prices caused by their lowering of interest rates to drive spending and boost our economy.

If you think about it, that makes sense. Growing Time Value Of Money Investment Wealth Fina Guwvny7

When we feel more comfortable about our finances, our job security, and our futures we’re more likely to spend more.

In particular, we’re more likely to spend on big-ticket items like new cars and upgrading our homes.

The CommSec luxury car index which tracks sales of 19 luxury car brands like Porsche, Aston Marti, Bentley, Mercedes, and Jaguar amongst others and this index now clearly shows that luxury car sales are growing in tandem with rising residential property prices with both measures posting their fifth month of consecutive rises.

Of course, when we feel wealthy we also splurge more on discretionary spending, and interestingly new Treasury analysis shows our economy grew $7.5 billion in the December quarter alone due to people holidaying at home and spending their money here in Australia rather than abroad.

While there are some sectors in the economy that continue to do it tough, overall the economic turnaround has been unprecedented- which is a word that only last year everyone was using about the effects of Corona Virus on our economy.

So to get an informed perspective of what’s happening in our economy and our property markets watch this week’s Property Insider chat with Australia’s leading housing Economist Dr. Andrew Wilson.

Booming auction markets refocus as holiday distractions ease.

Home auction markets continue to produce strong results for sellers generally, with buyers and sellers refocusing is the holiday distractions of the recent weeks eased.

Last weekend all capitals recorded auction clearance rates well above 80% with the exception of Melbourne, which was nonetheless just below 79.7%.

Listing numbers remain similar to the previous weekend’s offerings, providing sound choices for buyers and well ahead of last year’s auctions over the same Saturday.

Although the weekend auction markets remain clearly in favour of sellers with boom-time results continuing on Saturday, clearance rates in all capital cities remain below the record highs of recent weekends.

Watch this week’s video as Dr. Andrew Wilson explains the auction market trends and what’s likely to be ahead.

The Sydney housing market rebounded at the weekend following the previous weekend’s season-low clearance rate, producing another super-strong result for sellers generally.

Sydney Auction Trends

The Melbourne weekend home auction market reported that second consecutive weekend with clearance rates below 80%, likely reflecting the typical distracting impact of school holidays.

Melbourne Auction Trends

Unemployment Rate Continues to Fall – Despite Gloomy JobKeeper Predictions

The national unemployment rate continues to fall despite gloomy predictions on the negative impact on the labour markets from the end of the JobKeeper allowance.

The ABS reports that the national jobless rate (seasonally adjusted) fell 5.6% over March down from the previous months 5.8% and the fifth consecutive monthly fall in the unemployment rate.

Watch this week’s video is Dr. Andrew Wilson explains how the jobless rate is now within striking distance for the pre-Covid March 2020 result of 5.2%.

Unemployment Rate

Jobs growth was also strong over March – up to 70,700 and workforce participation levels increased over March to 66.3% and now well above pre-coronavirus levels reflecting increase job opportunities.

Participation Rate

Watch this week’s video as Dr. Andrew Wilson explains how unemployment has dropped in Perth to 4.8% as many jobs in the construction industry have driven down the unemployment rate.

Consumer confidence keeps rising

As Australians become more optimistic about their futures, the weekly ANZ-Roy Morgan Consumer confidence index keeps rising now almost at a 17-month high. Confidence is up by 74.6% since hitting record lows on March 29, 2020.

Similarly, the CBA Household Spending Intentions series rose; and combined these figures have positive implications for our economy.

Watch this week’s video as Dr. Andrew Wilson and I discuss what all this means.

Consumer Sentiment

Spending Intentions

Holidaying at home is boosting the economy

New Treasury analysis shows the economy grew by $7.5 billion in the December quarter alone due to people holidaying at home and spending their money here rather than abroad, as the government said the vaccine setback should not damage its budget projections. Holiday 300x201

The boost, equivalent to about 1.5 per cent of GDP for the quarter, shows domestic spending more than offset the impact of the severe restrictions on international borders and the effect these had on international tourism and other dependent sectors.

The federal government had forecast a $198bn Budget deficit for 2020-21 in its mid-year economic and financial outlook.

The Department of Finance has advised that the Budget bottom line improved by $23bn during the first eight months of the financial year; and some economists now expect the full-year deficit to be about $50bn lower than had been forecast in December.

New home sales surge

Sales of new homes soared 90.3 per cent in March, the second strongest monthly result since 2004, as buyers rushed in to access the second and final phase of the HomeBuilder grant before eligibility for the scheme ended last month. New Home

Eligibility to apply for the reduced HomeBuilder grant finished on March 31. More than 121,000 people had applied for the grant by then.

This surge in home sales together with a shortage of materials and skilled labour will / already has pushed up the cost of construction.

The federal government decided to extend by a further 12 months the deadline for work to start on dwellings contracted under the stimulus program – giving builders until September 30 next year to begin work, rather than the end of September this year.

Watch this week’s video as Dr. Andrew Wilson and I discuss what all this means for our property markets.

New Home Sales

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

Metropole Team

If you’re confused about the mixed messages in the media you are not alone.

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


'Rising property values are leading to a Wealth Effect | Property Insiders [VIDEO]' have 16 comments

    Avatar

    April 2, 2021 Mary

    @Joseph
    Your comment about “Australia heading towards Japan” and being over 1T in debt

    Have you seen this link lately?

    https://www.usdebtclock.org/world-debt-clock.html

    Australia is doing AMAZINGLY WELL compared to the rest of the world.

    I suggest to try removing the lens of pessimism and looking at life in general with a more realistic and optimistic outlook

    People are angry when prices go down
    People are angry when prices go up

    Can’t seem to win either way eh?

    Reply

    Avatar

    March 3, 2021 Jennifer

    90% of jobs recovered? I I don t think so. The tourism and travel sectors have been decimated and the education sector is not far behind. It s a shame that 9-5ers forget that these sectors even exist. I personally have been getting by on menial casual jobs for over a year and it looks like that will continue for most of this year as borders remain closed. Some of us have had our lives turned upside down for the foreseeable future, so No, it is not back to normal. I m lucky as I had some money and a mortgage already but I can t even go to the bank to access a better rate through refinancing as I don t tick a single box right now. And I work for a very reputable company normally – stood down definitely through no fault of theirs or mine. Not all of us are back to normal!

    Reply

      Michael Yardney

      March 3, 2021 Michael Yardney

      We quoted the Australian Bureau of Statistics latest figures. Of course for the many people like you who are still without a permanent job and the situation is terrible and we are not wanting to belittle that.

      Reply

    Avatar

    February 4, 2021 Raj Thakrar

    Hi Michael,
    It is too early to be generalist and say property prices will hike. There are number of factors in play here.
    1 Due to lock down some sales were on hold
    2 Government Incentive in play
    3 Relaxed lending rule
    4 Government incentive
    Cost of new build artificially inflated by builders and developers sending cost of new build to new level making house price higher. The buyers technically are not benefiting for these Government incentives they are going in to builder and developers pocket. Housing in Australia is still young growing market so bubble will burst scenario does to stack up. It is always demand and supply simple economics.

    Reply

    Avatar

    December 10, 2020 Philip Lee

    The property market didn’t collapse because the government is throwing everything at it to keep it afloat. Our property market is not a free market driven by market fundamentals. It is manipulated by the government cutting interest rates to zeo, stamp duty concessions plus first home buyer grants, and government guarantees for deposits all sucking in the financially unsophisticated into putting themselves into a life of mortgage stress. It’s just kicking the can down the road.

    Reply

      Michael Yardney

      December 10, 2020 Michael Yardney

      Philip. You are correct, our property markets have never been a “free market”, they have been manipulated by the Reserve Bank and APRA. Remember a couple of years ago when investors were dominating the market pushing up prices, the RBA raised interest rates and APRA made it much harder for banks to lend to investors and this slowed down the markets.
      Currently intervention has supported our markets and that’s good. It’s the government’s job to protect its constituents – you and me and one way of doing that is providing stability to our housing market. They are too big to fail and no one will let them fail.

      Reply

    Avatar

    October 16, 2020 Joseph Battaglia

    Michael your optimistic views irrespective of the true underlying data is disconcerting.
    The government is covering up the reality of the situation, throwing money against the wall at all costs (hoping some will stick) and falsely propping up the economy whilst kicking the can down the road. The rhetoric from parties with bias/interest in the real estate market are also contributing to the propaganda that “things are ok and sentiment is up” – whilst reality is different.
    We are not leaders on the world stage, for our real property obsession, in fact we are almost ridiculed that we are a nation that increases their wealth through selling properties to each other increasing the price at each transaction.

    Its fiscally clear, we should allow the reset button to deflate this overvalued bubble and get back to reality. I mean seriously, some of these prices are ridiculous!

    Are we going the way of Japan?
    This QE is just irresponsible on all counts.
    Over $1T in debt for such a small economy… come on, who are we kidding.

    Reply

      Michael Yardney

      October 16, 2020 Michael Yardney

      You are right Joseph, many of our industries are on life support from the government at the moment. And while the property market was being supported by loan deferrals, they seem to be cleaning themselves up nicely. What is the alternative? Do you really want to see businesses go broke and people go hungry? Our government and those around the world have learned how to handle economic downturns. And spending our way out of a downturn is a valid economic argument

      Reply

    Avatar

    October 2, 2020 Dave

    Dear Michael. Your articles are interesting
    and usually very well written . However this one is full of a lot of spelling and sentence construction mistakes that in parts make it hard
    to follow . Take a look at where it says sh-t (Let me know if you need a proof reader ) 😉

    Reply

      Michael Yardney

      October 2, 2020 Michael Yardney

      Thanks for the heads up Dave – you are right lots of errors in this one. As I can talk faster than I can type I usually use voice to text, and it is pretty accurate. But clearly I missed a couple of bad bloopers this time.

      Reply

    Avatar

    July 24, 2020 Martin

    The RBA will print money. And has printed plenty of it already to fight covid-19. It just doesn’t give the money directly to the government. It prints new money and uses it to buy government bonds on the secondary market so that institutions can take a cut as they buy the newly issued bonds from the government So that the government can pay for jobkeeper and Then these institutions onsell them to the RBA for a markup.

    Reply

      Michael Yardney

      July 25, 2020 Michael Yardney

      There has been a lot of discussion recently about Modern Monetary Theory, which suggests central banks should print more money and then give (lend) it to the government, to help pay for it debts.
      This week RBA governor Philip Lowe said that he won’t do that (print extra money) instead the banks should borrow on the open market at the prevailing low interest rates because they can afford it.
      Rather than print more money he gave the Morrison government the green light to increase debt levels and lock in a larger budget deficit to support the economy during its recovery from the virus crisis

      Reply

    Avatar

    June 26, 2020 Alex P.

    While Dr Wilson may say that more sellers entering the market is an expression of confidence, the flip side is that it may be the smart money taking the opportunity to exit while prices are still holding up. If you drill down in the data is there a way to differentiate whether these are investment properties or owner occupied properties being sold and how does that relate to historical data. Second point is that government intervention has done a good job of addressing short term liquidity over the crisis but there have been no measures on a similar scale to address solvency, and solvency is what really matters after the liquidity tap has been turned off.

    Reply

      Michael Yardney

      June 26, 2020 Michael Yardney

      Alex, you are right on both counts.

      Our experience on the ground speaking to buyers, sellers and estate agents, is that there are very few distressed properties coming on the market at present.

      Similarly we do not believe the government is going to pull the rug out from under us in September after he’s gone to such an effort to support the economy and our markets

      Reply


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