Retail sales slump and home values slide
Since the Reserve Bank began raising interest rates in May, total retail sales have risen by a modest 1.2 percent. There were large declines in the value of sales by department stores, clothing and footwear, household goods and in other retail. Sales by cafes and restaurants improved by 8 percent since May, but were effectively flat since September.
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Cherelle Murphy, chief economist of EY, said the impact of rising interest rates, high inflation and economic uncertainty is clearly making households reconsider their spending.
“There’s no doubt that consumers are tightening their belts right now,” she said. “This broad-based decline in retail sales is one of the first signs that interest rate hikes are starting to affect consumer behavior.”
CoreLogic reported on Wednesday that national home values are now down 8.9 percent from their peak in April of last year after another 1 percent drop in January. According to the CoreLogic Home Value Index, this is the fastest and largest decline since records began in 1980.
In Sydney, housing values fell 1.2 per cent in January to 13.8 per cent down from their peak in January last year. The city’s median home price fell from a peak of more than $1.4 million to just over $1.2 million.
Melbourne’s median house value fell 1.1 per cent last month to 9.3 per cent below their February peak. It’s now just over $900,000.
House values are now falling in every state capital with falls of 1.6 per cent in both Brisbane and Hobart.
Property prices in Sydney and Melbourne started to fall before the Reserve Bank started to lift interest rates in May. Data from the Australian Bureau of Statistics suggests the impact of those rate hikes is widening.
KPMG senior economist Sarah Hunter said the change in household spending would make the Reserve Bank board think. Economists and the market expect the board to raise the official cash rate by a quarter of a percentage point to 3.35 percent at next Tuesday’s meeting.
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“Households are clearly feeling the pressure of higher prices and rising mortgage costs,” she said.
CoreLogic’s research director, Tim Lawless, said the situation would have been worse but for the sharp drop in the number of properties on the market. The total number is 24.5 percent below its 5-year average and 22 percent below where they were a year ago.
“We’ve had a relatively controlled decline in values,” he said. “This is the biggest drop we’ve ever seen, but we’d probably see much bigger drops in prices if it weren’t for the drop in listings.”
While prices are falling, the spike in prices due to the pandemic still leaves many homebuyers sitting on a significant capital gain.
Brisbane housing values soared 42.7 per cent through the pandemic to June last year and have since fallen 10.8 per cent – the biggest drop on record for that city. The median house price in Brisbane is now $773,500.
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