The federal government is hoping those who receive their $900 "stimulus package" payment from April 6 spend and spend big.
Figures released by the Australian Bureau of Statistics on April 1 show that the boost given to retail sales by the Rudd government's "Harvey Norman" bonus in December has lost steam. Sales turn-over fell by 2% in February, breaking four months of increases.
Department stores were the worst hit as consumers, worrying about the increased chance of unemployment, kept their hands in their pockets instead of buying plasma TVs. The decline in revenues for Myer, David Jones and the like was 9.8% over the month, according to the ABS.
On the same day, however, the ABS released figures showing that building approvals for houses and units had increased by 7.8% — buoyed no doubt by the federal government's $21,000 gift to first home buyers who purchase a newly built home. The increase in building approvals has not, however, silenced concern about the future of the Australian housing market.
Under questioning from journalists, the deputy governor of the Reserve Bank of Australia, Rick Battellino admitted that the RBA expects the Australian economy to fall into recession in 2009, the April 1 Sydney Morning Herald reported.
However Battellino was quick to reassure people that the housing market "will hold up better than overseas".
Battellino argued that the Australian housing market had lost only 3% in value over the last year, well below the 20% loss suffered by the US and Britain.
"By and large, the great bulk of Australians who took out housing loans have been able to afford the repayments", Battellino said.
There would be "forces pulling the arrears rate in opposite directions" over the coming period, he said, with a growth of unemployment being (at least partially) offset by the fall in interest rates, which has reduced annual mortgage repayments by an average of $7000 a year.
Battellino's optimism is not universally shared however. While housing prices overall may have slipped only by 3% in the last year, Elinore Martel, writing in the April 1 SMH, referenced a report from MVS Valuers, which shows much larger falls in housing prices.
While outer-suburban areas of Sydney have been the worst hit, properties in suburbs such as beach-side Bondi have also suffered falls of up to 6%.
The price falls are significant, because they threaten home buyers with negative equity, should the value of their home fall below the cost of the mortgage they still owe.
The threat is greatest for first home buyers who are currently swelling demand for new construction. Many are buying new homes whose prices are artificially inflated by the government's increased first home owners' grant.
Should unemployment increase, many of those who have taken large mortgages may be unable to repay them. A sudden rush of defaults could send property prices tumbling, landing many thousands more in the negative equity trap.