Property experts make the argument that house prices can’t fall in Australia as we have very low unemployment. But it begs the question if a fall in house prices leads or lags a fall in employment?
The Unconventional Economist set out to answer this question last month and found that in the United States, employment started falling approximately 9 months after house prices hit their peak and started declining. In the United Kingdom and Ireland, employment started falling 6 months after house prices had peaked and started its decent.
Rising house prices lead to rising consumer confidence through the wealth effect. During the boom times, consumers were using their homes as ATMs, often spending beyond their means. But just as rising house prices buoyed consumer confidence, when house prices hit tipping point and start to fall, the purse strings tighten in less time than a drop of a penny. Australians are now saving and paying down debt, and in a big way.
The retail sector is Australia’s largest employer accounting for about 19 percent of GDP. When consumers stop spending beyond their means, retailers must start reducing hours and trimming positions. And they are doing just this.
Tonight’s Channel Ten 6pm news bulletin interviewed some retailers whom say times are still extremely difficult in our two speed economy and the margins are just not present to keep a full workforce. Unfortunately, they are letting staff go. But, Channel 10 reporters indicated soft retail conditions were a result of on-line purchases made overseas, and ignored any effects of a worsening domestic economy where living and house costs are spiralling out of control and where consumers are paying down debt as evident in a large spike in the net savings ratio. I guess this is done, not to impact consumer confidence any more!
But those retailers are lucky – their doors are still open, if only just. On Tuesday, the receivers of clothing and footwear retailer, Colorado announced the closure of 140 stores and the loss of 1040 jobs. On Wednesday, Ferrier Hodgson, Administrators for Angus & Robertson said a further 42 stores would close in the next four weeks, with another 519 employees out of work.
May job figures were released by the ABS, Thursday week. During the GFC, full time jobs were traded for part time jobs as uncertainty settled in. In early 2010, as confidence returned the domestic economy, those part time jobs were traded up for full time jobs.
But as the stimulus starts to wear thin, house prices and consumer confidence are once again falling, and we are once again losing full time jobs while part time jobs show a small uplift. At the same time, Fitch ratings is reporting mortgage delinquencies are at levels not seen since before the GFC.
But will there be a $900 spending handout and a First Home Owners Boost to save us this time?