Real estate slump to freeze big ticket spending

Companies that sell large household items could be the first to weather a fall in consumer spending as interest rates pick up again in the new year, with companies like JB Hi-FI and Harvey Norman likely to be in the eye of the storm.

While the nation completed a record $74.5 billion in spending before Christmas, with $1.2 billion spent on Boxing Day alone, according to data from the Australian Retailers Association and Westpac DataX, analysts are tilting the terms to the retail sector much harder to do .

Shoppers flocked back to malls in the weeks leading up to Christmas.

Shoppers flocked back to malls in the weeks leading up to Christmas.Credit:Joe Armao

As stock watchers await the Reserve Bank’s February board meeting before turning to the health of Australian consumers, many are predicting that household-related spending for larger purchases will slow.

Against this backdrop, retail analysts say youth-focused brands, companies that earn overseas revenue and independent food retailers are better positioned to weather the harsher conditions than sellers of furniture, appliances and housewares.

Morgan Stanley analysts warn that furniture sales, which have risen sharply (up about 30 percent from pre-COVID levels last year), are vulnerable to a slowdown, especially if house prices continue to fall.

“Years of housing declines like 2019 and 2012 usually coincide with declining furniture sales. Furniture purchases are also associated with home renovations, which typically occur when home price growth is positive,” Morgan Stanley’s team of analysts wrote in a report on the consumer outlook for 2023.

CoreLogic data released this week showed Australian house prices fell overall in 2022, with Melbourne prices down 8.3 percent from their February 2022 peak, while Sydney prices down 12.7 percent the January level.

“We would avoid exposure to large ticket and housing-related purchases, which we expect to be disproportionately impacted in 2023,” Morgan Stanley analysts said.

Instead, the group said it prefers consumer stocks that generate profits overseas, like Domino’s Pizza and Treasury Wine Estates. Real estate slump to freeze big ticket spending

Brian Lowry

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