A Slowdown in Spending Habits Affects Australia’s Housing Downturn

MasterCard, a global card payments giant, has warned that the housing market in Australia is poised to experience a slump due to a vital shift in spending habits of Australians.

According to a report from The Sydney Morning Herald, it has been observed that there is a slowdown in spending habits on household purchases such as on furnishings, appliances and hardware. Based on MasterCard's new SpendPulse report, household goods sales growth was below the three-month average in five out of the past six months.

With this trend, Sarah Quinlan, an analyst at MasterCard, said, "We are seeing a pronounced slowdown and it's deepening each month. Therefore we fully expect real estate will weaken further."

"It's the same correlation in the United States," Quinlan added. "We saw a drop in appliance sales for eight months and sure enough we saw the housing recovery basically slow to a crawl - it's a very correlative indicator."

Australia has been experiencing a housing market bubble buoyed by high expenditures on housing goods until the MasterCard's report came out. In Sydney alone, median house prices have climbed by more than 50 percent in the past three years, according to Domain Group. The country is facing an oversupply, but Robert Mellor, BIS Shrapnel managing director, forecasts that house prices will only experience a modest price corrections. Other analysts, however, predict a 20 percent to 50 percent fall in median prices, as reported by Financial Review.

Ian Verrender wrote on ABC that the bubble is going to burst with certainty. It has happened in western countries in the past years and it is what is happening in Australia now. Property valuations have skyrocketed, and when serious corrections happen particularly in the currently hot markets of Melbourne and Sydney, Verrender said the country's banking system will be greatly affected and so is the economy.

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