Luxury car sales in Australia aren’t growing as quickly as they used to, and that may be sign that property market conditions might also be about to cool.
That’s the view of Craig James, chief economist at Commsec, who says that a slowdown of luxury vehicle sales has heralded a slowdown of upper-end property sales and prices.
James points to this chart to demonstrate the past relationship.
It’s had a fairly solid relationship over the past six years, at least up until recently, that is.
While house price growth has jackknifed higher courtesy of some enormous increases in Sydney and Melbourne, luxury car sales growth is now well and truly rolling over.
“Annual growth of new luxury vehicles has slowed markedly over the past year,” says James. “In April 2016, annual growth was 19.7%. In March 2017 it was just 5.2% — the slowest growth in 52 months.
The 17 luxury vehicle marques tracked by Commsec are Audi, Aston Martin, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, Maserati, Maybach, Mercedes-Benz, Morgan, McLaren, Porsche, and Rolls Royce.
While sale are still increasing — there were 105,265 sold in the year to March — James says that this could be a signal that conditions in high-end property markets are cooling, something that carries implications for the broader property market.
“In the past, a slowdown in sales of luxury vehicles has signalled a slowdown of upper-end property prices. And when the top end cools, invariably this infiltrates the broader market,” he says.
He says that while the relationship between the two isn’t perfect, it’s interesting that the wealth effect from higher house prices isn’t being reflected in luxury car sales.
Perhaps Australians home owners are using their capital gains to upgrade their existing digs, or to expand their property portfolio, rather than buying the latest model.
Or it could be a sign that high levels of household indebtedness, even with the wealth effect from higher house prices, is now even impacting more affluent Australians.
Speaking earlier this year, RBA governor Philip Lowe said that while households are coping reasonably well with the high levels of debt, there were “some signs that debt levels are affecting household spending”.
“Households are carrying more debt than they have before and, at the same time, they are experiencing slower growth in their nominal incomes than they have for some decades,” he said.