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Figures released by the RBA show many home owners are choosing to repay their mortgages more quickly than required, with nearly 50 per cent of owner-occupiers with mortgages ahead of schedule on their repayments.

Economic Brief - Ian James: Economic Sub Program, National Industry Development Program

Consumers and the wealth effect

While income is obviously an important factor impacting on consumers' ability to spend, wealth factors also strongly influence consumer spending. Most Australians have their wealth tied up in the family home and superannuation.

Superannuation is paid for by the employer and is only really a consideration for most Australians as they approach retirement. No doubt this latter demographic, and those who have already retired, have had their confidence to spend impacted by the poor performance of superannuation funds in 2011.

House prices, however, are what former Prime Minister John Howard used to refer to as a 'barbecue stopper' - and there was plenty of talk about real estate at the Australia Day breakfast barbecue in my small rural community. Every Australian has a story about real estate and it's usually about how much their house is worth. In most cases the gains are relatively surreal until the home is sold, yet these nonetheless play an important part in the psychic of many consumers.


House prices continue to fall

Official data released by the Australian Bureau of Statistics (ABS) last week on established house prices in Australian capital cities, confirms what the Australia Day barbecue gossip tells us: House prices have been falling in all of the capital cities, with an average slump of 4.8% across all eight capital cities in 2011 (see figures below).


Sydney - 2.7

Melbourne - 6.1

Brisbane - 6.7

Adelaide - 6.4

Perth - 4.9

Hobart - 4.0

Darwin - 5.4

Canberra - 2.6

Average - 4.8


While this decline was more subdued in Sydney and Canberra, the nationwide impact of this suggests that something broader than the two speed economy is affecting residential house prices.


Consumers in lock down

Consumers are much shorter on confidence than they are of a few quid. Falling house prices, superannuation funds showing negative returns in 2011 and the prevailing uncertainty overseas, have been a potent mix of negativity in the early months of 2012. And then there's the constant media attention on corporate Australia slashing costs by reducing staff numbers and sending jobs offshore.

The good news stories of rising income levels and booming investment are unfortunately being lost. Even the rise in the Australian dollar has frequently been shown in a negative light, when any economics 101 student will tell you that an appreciating currency is a sign that a country is outperforming its peers and that the standard of living for its citizens is rising faster than others too.

All of this uncertainty may explain why consumers feel a little nervous about spending. History tells us that things will change, but for now it's best to keep the brolly handy (although one suspects some Australians may have baseball bats in their hands).