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Investors are also contributing to the demand for housing and pushing up prices. Investor loan growth jumped to 7.3 per cent in the year to September, the fastest annual pace since 2015.
Around 80 per cent of consumers expect house prices to rise over the next 12 months, according to Westpac.
Meanwhile, being wealthier on paper doesn’t provide more spending money, but it makes us feel more prosperous and generates what economists call the “wealth effect”.
And it increases our level of spending.
Australian household wealth has jumped by 43 per cent since the pandemic – outstripping the 34 per cent increase in household income over the period. (Over the past five years national house prices have risen 47 per cent).
The wealth effect plays out differently in our decisions to buy certain goods, according to a JP Morgan report titled The House Always Wins which finds that travel, health and clothing are the three biggest beneficiaries from feeling wealthier. In contrast, it says vehicle purchases, financial services and spending on recreation receive less of a bump from rising wealth. And spending patterns on essential goods like food, don’t tend to change in response to consumers feeling wealthier.
It is notable that consumer confidence has surged between October and November, according to the Westpac–Melbourne Institute Consumer Sentiment Index, released earlier this week.
It is the first positive reading since early 2022.
Domestically, there are clearer signs that a recovery is gaining momentum, especially around consumer demand and housing markets, according to Westpac economist Matthew Hassan.
Consumers are also feeling a little bit more comfortable about external threats like the US trade war thanks to a recent de-escalation in China-US trade tensions.
And they appear to be less concerned about a stronger than expected recent inflation reading.
So the combination of positivity about the domestic economy, the taming of concerns about the international economy and strong house prices appear to have combined to boost sentiment. With six weeks until Christmas, it’s off to the shops.
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