It looks like Aussies are more eager than ever to buy a home, according to new data from the Commonwealth Bank.
The latest CBA Household Spending Intentions Series report, which is based on CommBank’s own household transactions data and Google Trends analysis, reveals the home buying intentions of Aussie households have hit a peak, surpassing July 2017 levels.
Since the first half of last year, home buying intentions have been on the rise, and in December, they reached a record high.
Mozo’s Banking Expert, Peter Marshall said these findings aren’t a shock, given the triple RBA cash rate cuts last year and the surge in house prices.
“With interest rates at record lows, it’s not surprising that people are considering property as an investment. If you’ve got cash in the bank, you’re really not getting any meaningful interest. So property is one of those things that Australians love putting their money into, and it’s also seen as a fairly safe investment,” he said.
“And with property prices starting to increase, people are expecting they could get quick returns.”
A new chapter in Australia’s housing market, and what it means for consumer spending
CommBank’s Chief Economist, Michael Blythe said the positive turn in home buying intentions could mean things are beginning to look up for the economy. In particular, he expects home construction activity to bounce back after it slumped by the sharpest rate since 2012 early last year.
“Past cycles show that leading indicators like building approvals turn about three months after home buying intentions start to lift. A bottoming in the construction cycle would remove a major growth drag on the economy, and also helps retailing,” he said.
“There are some early signs of a ‘wealth effect’ from the housing market supporting spending on motor vehicles, albeit from a very low level, as well travel and entertainment.”
A positive ‘wealth effect’ is where people spend more because the value of their assets is increasing.
And indeed, the value of property seems to be going up, up, up. National house prices finished on a high in 2019, soaring by 4% in the three-month period to December - and according to Blythe, dwelling values will maintain this upward climb into the first half of 2020.
“It’s kind of a self-fulfilling prophecy,” Marshall said. “Prices start going up, people think purchasing property looks like a good idea, so prices go up even more.”
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But it's not all good news.
According to Marshall, while spending intentions in some areas like motor vehicles are improving, “we’re still way in the negative territory”. In fact, the number of car sales between the 2018 and 2019 financial year was the lowest since 2011.
“We’re massively down on what we used to see in car buying activity. We haven’t recovered to a normal level, let alone to a level that would indicate that people are confident and happy to spend,” he said.
What's more, retail spending intentions remained flat in December, a result Blythe called “disappointing”, given that the tables haven't turned despite all the rate cuts, tax rebates and rising house prices.
But Marshall said there’s a reason why Aussie households still want to pull the reins in on spending: slowing wage growth.
“I think wage growth is a major missing component in what’s being viewed as a slight recovery in the economy. Without wages growth, it’s hard to see how we can sustain the current pace of property price growth, and that forecasted rise in consumer confidence could be all just wishes and dreams,” he said.
“It’s going to take a while for people to build up the confidence to spend on more discretionary items. They’ll first want to see some meaningful shift in unemployment, which will help to put pressure on wages and boost wages growth.”
Quick tips for wiser spending
For Aussies concerned about their spending, Marshall shared two savvy tips:
- Avoid going beyond your means: Don’t take on any more debt than what you can comfortably service, whether it’s a traditional personal loan or credit card or a Buy Now Pay Later service.
- Prepare for the worst: Be aware of the risks involved with investing in property. For instance, think about what might happen if there’s an economic downturn and you’re suddenly left with a property that’s worth 20% less than what it was when you bought it. Better to be safe than sorry!
Interested in buying a home this year? If you’re thinking of investing in property, head over to our investment loans comparison table, or if you’re a first home buyer, be sure to check out our first home loans comparison table.