Thriftiness is New Normal Among Australians
More Australians are pinching pennies and paying down their home mortgages in large numbers that thriftiness has become a normal way of life in the country.
Experts explained the new spending and saving habit among Aussies to insecurity over European's almost meltdown and dipping home prices. The transformation happened just over four years, beginning with the 2008 global financial crisis (GFC).
Prior to the GFC, between 1992 and 2006, housing loan grew at 15.2 per cent. This was fueled by lower interest rate that many Aussies traded, renovated or brought home appliances using their soaring home value as equity. However, since annual housing credit growth was halved to 8.3 per cent, Aussies shied away from appliance and furniture stores and instead saved their money in the bank.
As a result, $50 billion was taken out of equity markets in the last four years and an extra $210 billion was deposited in banks. The impact of the thrift behavior was felt by builders, retailers, property professionals, bankers and hardware and whitegoods industries.
BIS Shrapnel veteran Robert Mellor described consumers' hoarding mentality as an activity often seen during recessions.
As a result, cash spend on additions and alterations for existing homes declined 6.5 per cent in New South Wales and 2.5 per cent in Victoria. BIS Shrapnel warned that in 2012, it may further fall to 9 per cent in Victoria, but may recover to almost below 1 per cent in NSW.
The country's retail sector also felt the consumers' tight hold on their purses as major players such as David Jones and Myer reported significant declines in profit for the first half results. The situation was worsened with shoppers' shift to online shopping over purchases made at traditional stores.
A retail executive explained that while shops are selling fridges, TVs, washers, small appliances, irons and toasters at prices lower than 30 years ago, consumers are hardly buying.
Fujitsu Australia Executive Director Martin North explained the phenomenon to Aussie households having very little free cash, the rising cost of living and first-time homebuyers spending about 43 per cent of their disposable income on monthly mortgage payments.
Retail sales are at levels associated with a 10 to 11 per cent unemployment rate even if joblessness rate is actually about 5 per cent.
"These are fundamental long-term issues.... This isn't going to be a dip in the cycle. We are seeing some behaviours and some different factors which are suggesting the long-term outlook for the next five years in quite flat," Mr North said.
Master Builders Australia chief economist Peter Jones said the weak consumer confidence is a strong case for the Reserve Bank of Australia (RBA) to cut the overnight cash rate. The RBA board is slated to meet on Tuesday.