The Advertiser today reports on a 34 year study showing that the rise and fall of the economy follows the housing market by 12 to 24 months.
National Australia Bank chief economist Alan Oster said this has a wide economic impact, as people decide to either spend more or spend less.
Mr Oster said property prices, more than anything else, affected spending patterns, often with major economic consequences.
“Changes in house prices affect people’s perception of wealth. Research we have done suggests that if house prices move by 10 per cent either way then consumption activity overall will change by around 1.2 per cent,” Mr Oste said.
“So if someone tells you your house is now worth $100,000 more than you thought, on average the Australian consumer will spend $10,000 more than if they hadn’t known the higher value.”
Previously we have shown this graph suggesting a similar thing :
It would seem the confidence of home builders, based on the strength of the housing market can be used to predict the stock market 12 months in advance. This could suggest consumers reduce their spending, which in turn impacts corporate earnings and hence the share price.
» Property paves the path – The Advertiser, 18th June 2007.