Retail stocks to be a casualty of Australia’s property plunge

Australia’s property price plunge is set to ensnare the nation’s biggest retailers, with stock watchers tipping that the latest round of interest rate rises will put brands like JB Hi-Fi, Harvey Norman and Temple & Webster in a tough position for the rest of the year.

Investment bank Jarden downgraded its housing forecasts this week after the Reserve Bank of Australia’s latest interest rate rise, warning prices could fall by as much as 20 to 25 per cent this year before recovering 10 per cent in 2024.

Jarden now predicts the cash rate to hit 4.1 per cent by May, which would see average mortgage rates exceed 6 per cent. This would cap borrowing capacity for homebuyer hopefuls, but also put discretionary goods retailers under pressure, the group said.

“For the consumer, we remain most cautious on the household goods category, with sales turning negative through December/January and this likely to continue for the first half of 2023. We remain most cautious on Harvey Norman, JB Hi-Fi and Nick Scali, with some risk also for Metcash and Wesfarmers,” Jarden chief economist Carlos Cacho said in a note to clients.

Other investment banks are nervously anticipating outlook statements from retailers when they start reporting half-year financials next week, with the majority expecting the market to punish any evidence that conditions are slowing.

Loading

Macquarie’s analyst team says its data suggests spending on home goods remained above pre-COVID levels in January – but its proportion of overall consumer spend has dropped.

“Home furniture as a proportion of total spend has begun to drop below its three-year average of 3.4 per cent. In January 2023, the average weekly spend on home furniture has fallen to 3.1 per cent. This weakness may be impacted by some pull forward of demand from strong Black Friday trading,” the group said.

Macquarie’s online traffic data shows visits to pure-play online furniture retailer Temple & Webster dropped by 2 per cent for the month, showing further evidence of headwinds for consumer products.