Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Monday, 16 March 2015

"Move the Camira...I need to get the Torana out to get to the Commodore"

Consumption needed

Consumption has a very important role to play for the Aussie economy in the years ahead as mining investment falls away.

With mortgage stress clearly in decline, there is clearly potential for consumption to play a key role in the rebalancing of the economy.

Westpac reported recently that more than 20 percent of its mortgage customers were fully two years ahead on their mortgage repayments, an extraordinary statistic.

This accords with Commonwealth Bank's assertion that nearly 75 percent of its home loan customers are in a prepayment position.

Mortgage serviceability has improved dramatically and house prices are rising, and strongly in the largest capital cities.

What the Reserve Bank would dearly love to see would be Aussies loosening the purse strings and increasing household consumption.

New vehicles sales up almost across the board

The ABS released its Sales of New Motor Vehicles figure for February 2015 today which revealed the best result since Q4 2013 with some 95,737 sales in the month.

This is welcome news and perhaps a hint that low interest rates are beginning to do what they are supposed to.

The year-on-year figures revealed a 6.6 percent decline in new motor vehicles sales in Western Australia, a sure indication of the resources construction boom having ended.

However, every other state and territory saw a strong uplift with year-on-year sales improving across the board.

New car affordability at record high

The figures were driven by strong sales of luxury car sales, adding weight to the view that low interest rates have been a genuine boon to household balance sheets.

It also seems likely that easing petrol prices may also have helped to "fuel" (if you'll pardon the pun) the surge in sales of instatiate gas-guzzlers.

This is interesting in that there is said to be a strong positive correlation between luxury car sales and dwelling prices.

Meanwhile the affordability level of new cars on Commsec's index measures is at the highest level ever recorded.

Before this month, sales of new motor vehicles had been pottering along somewhat, but the interest rate cut in early February may well have spurred a resurgence in motor vehicle sales.

In terms of vehicle type, the sports utility continues to replace the traditional passenger vehicle as the motor of choice.

At the state level, New South Wales unsurprisingly continues to lead the way in rolling annual terms, reflecting the comparative strength of the Sydney economy.

However, the decline in motor sales in the mining states over the past year is clearly evident on this chart as mining contractor positions are scaled back in resources regions.

The Wrap

We should not read too much in any one result, but 95.737 sales in a month reprsents a sizeable jump and news which will be embraced gladly.

A number of overseas car brands have netted record sales of late.

This suggests that Free Trade deals and the removal of import tariffs have played a significant role with the trimming of prices of cars imported into Australia from Japan and Korea.

Some of the brands which have reportedly become cheaper have included Toyota, Kia, Mazda and Subaru.

Let's hope that consumption continues to record more results like this one in the year ahead.