Flat retail sales in July have sparked concern that falling housing prices, particularly in Melbourne and Sydney, are affecting already sluggish consumer spending, in a signal that the retail blues have yet to run their course.
In a recent report, Citi analyst Bryan Raymond argues a moderation in trading at large homewares and accessories chains like Bunnings and JB Hi-Fi is symptom of a cooling in the housing market.
While the slowdown was evident throughout the 2018 reporting season, there is concern that housing-exposed retailers throughout the market may continue to experience sluggish conditions in the coming months, reports The Australian.
Retail sales for July fell short of market expectations on Monday, recording no growth, while the seasonally adjusted measure for household goods spending fell 1.2%.
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CoreLogic’s home value index has now tracked 11 consecutive months of decline, with tighter credit attributed as the driver of particularly steep declines in Sydney and Melbourne.
But not all retailers are buying the subdued commentary. Yosuke Hall, managing director of online homewares retailer Zanui.com.au, believes there’s plenty of spending to go around in the market, particularly for disruptive e-commerce players.
“Business has been particularly good and I think the reason for that is being a purely online business, we’re a little bit insulated from the broader macro movement,” Hall told SmartCompany.
“Digital natives are becoming homeowners and they are buying online … there’s a shift in purchasing behaviour and the demographics that are now purchasing homewares.”
Hall said he expects competition in the digital space to continue to intensify, but believes there’s enough rope left in the market for savvy players to flourish.
“Consumers are balancing the positives and the negatives”
CommSec chief economist Craig James is also relatively positive about the prospects for housing exposed retailers over the next 12 months, citing strong activity levels in the sector.
“What we’ve seen in July [retail spending] was a pause more than anything else, so we wouldn’t be reading too much into it,” he told SmartCompany.
“We’ve seen an easing in home prices in some cities like Sydney, Melbourne, but activity levels in the housing sector remain very strong so there’s still going to be a lot of homes built over the next 12 months.”
James says while there are a few potential headwinds, such as a falling Australian dollar and rising petrol prices, consumer confidence is still above long-term averages.
“Consumers are balancing the positives and the negatives and we are seeing positive growth in overall spending,” he says.
Meanwhile ANZ is actually predicting a potential stabilisation in housing prices later this year, after its house search index signalled an uptick in activity.
The metric, which uses Google Trends to track internet searches related to home buying to form a view on the likely evolution in house prices, lifted in August.
ANZ’s head of Australian economics David Plank said it was still “early days” but the result signals some better news for housing prices.
“Several other indicators are also suggesting an improvement in the housing market may be in the offing for later this year. Sydney’s auction clearance rate has ticked up, and the housing credit impulse lifted in July,” Plank said.
“But it is very early days. The housing market has to negotiate the impact of one of the major banks raising its floating mortgage rate, if only by a very modest amount. So we continue to watch the data with considerable interest.”