Weekly Reports | Apr 05 2024
House prices to continue to rise, consumer services overlooked; soft landing experience; copper deficit ahead.
-Rising house prices to drive economic growth
-Consumer services companies seen offering value
-Comparison to the Fed in 1995
-Copper demand to outstrip supply
By Greg Peel
Bet Your House
House prices in March rose for the 14th month in a row, notes Jarden, up 0.6% month on month and up 8.8% year on year. Overall, between a reacceleration in monthly growth rates, a rebound in auction clearance rates to the high 60% levels from the lower 60% levels in late 2023, and a further improvement in sentiment, the housing market appears to be reaccelerating after slowing into end-2023, the broker suggests.
We are also now seeing volumes lift materially, which could suggest upside risk to housing-sensitive parts of the economy, Jarden believes, such as household goods and renovations activity. While the broker expects the positive price growth trend to continue over 2024, the analysts do expect growth to moderate given the gap between prices and borrowing capacity, and increased volumes.
Jarden’s base case assumes no RBA rate cuts until February 2025, with APRA leaving the 3% serviceability buffer in place, but earlier easing would represent material upside risk. The broker estimates each -50 basis points of cash rate or buffer cuts are worth around 4-5% for house prices.
While Jarden does not think the recovery in the housing market will have much bearing on the RBA's rate decisions in isolation, it could have an impact on the timing of rate cuts if it flows through to a broader economic recovery. In particular, the broker believes the housing recovery - once combined with tax cuts and improving consumer confidence - could support consumer spending in the second half of 2024.
Set for Take-Off
The earnings results of companies selling consumer goods were a standout in the recent reporting season, Wilsons notes. Consumer services companies (travel, fast food, gaming) on the other hand, especially fast food and travel, have underperformed the retailers over the past six months.
The market may be overlooking consumer services, Wilsons suggests. These companies still boast above-average earnings growth potential, and valuations look attractive at current levels in the broker’s view.
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