There are signs Australia's housing downturn is now dragging on the economy

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  • Quarterly data from ANZ showed Australia’s housing market dragged on economic activity in the June quarter.
  • The “Stateometer” showed trend growth decelerated in Australia’s four largest states, which account for 90% of GDP.

Falling property prices are now weighing on economic sentiment across Australia, according to the results from ANZ’s latest “Stateometer”.

Economic momentum fell below the trend growth rate in each of Australia’s four largest states, which account for around 90% of domestic GDP.

The June quarter results show that momentum in Victoria, NSW, WA and Queensland is now below trend and decelerating:

Source: ANZ Bank

It marks a shift from the March quarter, when only WA’s economy was in the bottom-left quartile.

As a quick comparison, here’s what the Q1 trends looked like:

As at the end of March, there were signs the Sydney housing downturn was already starting to bite as the NSW economy was above trend but decelerating.

But both Victoria and Queensland were above trend and accelerating, before going into reverse in Q2.

“As we highlighted last quarter, the weighty housing sector has had a strong influence on the ANZ Stateometer,” said economists Cherelle Murphy and Jack Chambers.

“Every state, except Tasmania, experienced a drag from this component of their economies in the June quarter.”

Tasmania has been the best performing state for property over the last 12 months.

ANZ’s Stateometer is a composite index based on 37 economic indicators including household spending, the labour market and housing. The figures are reported with reference to the average trend, which gives a measure of whether growth in accelerating or decelerating.

The Q2 results showed activity in NSW fell below the long-run average for the first time since the start of last year.

And the trend in Victoria fell to its lowest level in over three years, despite the fact that Victoria leads other states in terms of population growth and construction activity.

However, “changed housing market sentiment has weighed on economic activity in the quarter,” the analysts said.

“Established house prices fell 1.6% (seasonally adjusted) in the June quarter, representing the first quarterly fall in six years.”

The falls in Victoria’s housing sub-index were offset by high levels of construction and infrastructure investment and a strong labour market.

For each of Australia’s two biggest states, ANZ still expects annual growth in Gross State Product for Q2 (to be released in November) will be around 3% — in line with the long-run average.

And across Australia, the Q2 data still highlighted some positive signs for the economy despite the drag from housing.

Labour markets maintained above-trend growth, company profits were strong and investment indicators are still positive, particularly for public infrastructure projects.

Most states also reported positive momentum for international trade and there are upside risks from commodity prices.

However, “some downside risks have become more acute”, ANZ said.

Murphy and Chambers said momentum in consumer spending fell in Q2, led by declines in the sub-indexes for personal finance and motor vehicle sales.

ANZ also cited the negative effects from the ongoing drought, and reduced business confidence stemming from recent political uncertainty.

But the housing factor was the main underlying theme in the latest data.

“Australian households are, on average, more vulnerable to changes in housing market sentiment due to high indebtedness,” Murphy and Chambers said.

With house prices still in decline, the Q3 Stateometer will provide another update on how sentiment is holding up amid the housing downturn.

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