Australia | May 05 2020
Economists at Westpac warn a sharp fall in consumer sentiment is a bad omen for the housing market in Australia
-The Westpac Melbourne Institute Index of Consumer Sentiment has recorded the single biggest monthly decline in the history of the survey
-Additional questions in the survey indicate one in five workers have lost their entire wage income during the covid-19 crisis
-Westpac predicts -10% decrease in house prices before the end of 2020
By Danielle Austin
Economists at Westpac believe a drop in house prices by year-end in Australia is now inevitable, forecasting a likely -10% decrease.
Declining housing sentiment and confidence in the short-term Australian economy coupled with widespread income loss will take a toll on the Australian economy over the coming months, with Australia likely to suffer its first recession in nearly 30 years.
Consumer confidence has taken a hit as the financial impacts of the coronavirus crisis become more apparent, with results from the Westpac Melbourne Institute Index of Consumer Sentiment showing a -17.7% decrease in confidence during March, the steepest one-month decline in the 47-year history of the survey.
The index dropped to a low of 75.6, below the levels recorded during the global financial crisis and close to the recessionary lows recorded in the early 1990s, as the Australian economy is facing its first recession in nearly three decades.
The fall comes as economic impacts of the global coronavirus crisis take further impact. In response to the health pandemic, governments around the world have imposed shutdowns on travel and social activity and effectively banned many economic activities.
While the survey usually provides a good estimate as to consumer spending over the next three to six months, a lack of comprehensive post-virus spending data means the results may be a less useful guide than usual.
Although retail sales showed an 8.2% increase during March, this figure was overwhelmed by a more than 20% increase in stockpiling practices with basic food making up 40% of total sales for the month, not reflective of all retail sectors.
Consumers less willing to spend
Despite a $320bn coronavirus economic rescue package hoping to reinvigorate the economy, responses have so far shown the tangible impact of this package could be slow.
Consumers have indicated they are planning on spending less of their crisis benefits than they would have during the global financial crisis.
While during that time nearly two-thirds of benefit receivers spent all the money given to them, the survey indicates only a quarter of consumers plan on doing the same in 2020.
The survey did provide an indication that consumers expect the economic impacts of the coronavirus crisis to be temporary.
Near-term outlook indices showed consumers lack confidence in the strength of the economy over the next twelve months, with sentiment falling -31% compared to previous surveys. Confidence in the five-year strength of the Australian economy fell just -3.8%.
Sentiment to impact housing
One noticeable consequence of this lack of confidence is an eighteen-year low in housing sentiment.
Compared to the three-year high recorded less than one year ago, Westpac points out the March survey revealed the sharpest decline of the measure on record, and indicative of a -30%-40% drop in housing turnover over the next few months, despite further cuts in interest rates.
If correct, this will likely lead to the lowest turnover levels since the late 1980s.
According to Westpac, these figures suggest an inevitable price correction. Combined with income hits whose impacts are already reaching the housing sector, a price decline of -10% looks likely by the end of this year.
The survey also implied that one in five workers have lost their entire income during the crisis.
Additional employment questions revealed that of those employed in March, 7% had lost their jobs, while a further 14% had been temporarily stood down without pay.
Consumers on lower incomes appear harder hit, with 30% of those earning less than $40k per year reported having lost all income compared to only 16% of those earning over $100k per year.
Similarly, younger workers reported more incidences of income loss, with 42% of 18-24-year-olds reporting job losses or unpaid stand downs, unsurprisingly given that the highest rates of job loss came from the accommodation, cafe and restaurant sectors, reporting 47.5% job loss, as well as recreational services and retail.
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