One analyst has claimed that “a very high correlation” exists between house prices and consumer sentiment.
Credit Suisse senior adviser Robert Parker said that if house prices are increasing at twice the rate of inflation per year, it actually has a very positive impact on consumer sentiment.
“If, however, you have a housing bubble like we had [in 2013] in Singapore and arguably still have in Hong Kong, as we did earlier in 2014 in London, that actually has a negative impact on consumer sentiment, because everyone is assuming the bubble is about to burst,” Mr Parker said.
“I don’t see that happening here in Australia,” he said.
However, while Australian property prices continue to rise well ahead of inflation, consumer confidence has fallen to its lowest point in more than three years, throwing Mr Parker’s theory into question.
The latest Westpac-Melbourne Institute Survey of Consumer Sentiment paints a bleak outlook for the economy for the next 12 months.
Westpac chief economist Bill Evans described the 5.7 per cent fall in the Consumer Sentiment Index, from 96.6 in November to 91.1 in December, as "a very disturbing result".