Contented consumers; Fewer people in homes: CommSec's Craig James

Contented consumers; Fewer people in homes: CommSec's Craig James
Contented consumers; Fewer people in homes: CommSec's Craig James

GUEST OBSERVER

The weekly ANZ/Roy Morgan consumer confidence rating fell by just 0.4 points (0.3 percent) to 116.0 in the week to March 20.

Confidence is up 4.1 percent over the year and above the average index value of 112 since 2014.

Higher home prices: The Bureau of Statistics reports that Australian home prices rose by 0.2 percent in the December quarter to stand 8.7 percent higher over the year.

Fewer people in homes: The estimated number of people per home continues to fall, dropping from 2.491 to 2.488 in the December quarter.

The consumer confidence figures have implications for finance providers, retailers, and companies dependent on consumer and business spending.

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Contented consumers; Fewer people in homes: CommSec's Craig James

What does it all mean?

Headed into a period dominated by the Federal Budget and a possible double-dissolution election, Aussie consumers are in good shape. All the key components of the confidence survey are above short-term averages.

And indeed the outlook for family finances over the coming year – a lead indicator of spending – remains positive.

The key question is how confidence evolves over the next few weeks. The Aussie dollar is near US76 cents, interest rates are at generational lows, trend unemployment is at 26-months lows and petrol prices are just above the lowest levels recorded in six years. So there are few reasons to be negative.

The Bureau of Statistics has released data on home prices for the December quarter. However the better measures on home prices are those produced by CoreLogic RP Data and it’s worth noting that March quarter data will be released in just over a week, on April 1.

From 2011 to early 2014, the average number of people in Aussie homes rose – a rare development over the past century in Australia. But with more homes being built in recent years and rental conditions easing, more Gen Y (or Millennials) have been moving out of home. As a result the number of people per home is again shrinking, serving to soak up the increased supply of new homes.

What do the figures show?

Consumer confidence

The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.4 points (0.3 percent) to 116.0 in the week to March 20. Confidence is up 4.1 percent over the year and above the average of 112 since 2014. Three of the five components of the index rose in the latest week:

The estimate of family finances compared with a year ago was up from +10 to +11;

The estimate of family finances over the next year was down from +35 to +27;

Economic conditions over the next 12 months was up from -2 to +2;

Economic conditions over the next 5 years was up  from +7 to +9;

The measure of whether it was a good time to buy a major household item was down  from +32 points to +31 points.

Residential property prices

The Bureau of Statistics (ABS) has released its Residential Property Price indexes.

“The price index for residential properties for the weighted average of the eight capital cities rose 0.2 percent in the December quarter 2015. The index rose 8.7 per cent through the year to the December quarter 2015.

The capital city residential property price indexes rose in Melbourne (+1.6 percent), Brisbane (+1.6 percent), Adelaide (+0.9 percent), Canberra (+2.8 percent), Perth (+0.5 percent) and Hobart (+2.5 percent) and fell in Sydney (-1.6 percent) and Darwin (-1.8 percent).

Annually, residential property prices rose in Sydney (+13.9 percent), Melbourne (+9.6 percent), Canberra (+6.0 percent), Brisbane (+4.2 percent), Hobart (+3.5 percent) and Adelaide (+3.3 percent) and fell in Darwin (-3.2 percent) and Perth (-2.9 percent).

The ABS notes that as at December 2015 there were 9.62 million homes in Australia. On average there were 2.488 people per home, down from 2.491 in the September quarter.

“The total value of residential dwellings in Australia was $5,885,967.2m at the end of December quarter 2015, rising $31,557.1m over the quarter.

The mean price of residential dwellings rose $800 to $612,100 and the number of residential dwellings rose by 38,700 to 9,615,800 in the December quarter 2015.”

What is the importance of the economic data?

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

The Australian Bureau of Statistics (ABS)  provides quarterly data on residential prices. The figures provide further perspectives on the state of the housing purchase sector.

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Contented consumers; Fewer people in homes: CommSec's Craig James

What are the implications for interest rates and investors?

CommSec doesn’t expect any change in the cash rate for the foreseeable future. Underlying inflation remains at the bottom of the 2-3 percent target band but should lift over 2016.

The Reserve Bank believes that the aspects of the consumer confidence surveys dealing with family finances are the most important. The good news for retailers is that Aussie consumers believe finances are better than a year ago and likely to remain in good shape.

The fall in the number of people per home most probably reflects lower growth in rents and the lift in homebuilding, especially the shift to apartment living. But the drop in the number of people per home is one factor serving to alleviate concerns of a potential oversupply developing of new homes.

Craig James is the chief economist at CommSec.

Tags: 
Home Prices Household Spending

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