Luxury car sales and home prices rise together
In November, new vehicle sales were up 12.4 per cent on a year ago – the first annual gain for around 2½ years. Luxury car sales rose 16.3 per cent over the past year. Home prices rose 0.8 per cent in November to be up 3.1 per cent on the year.
CommSec maintains a luxury vehicle sales index. Sales at the top end of the market are generally a good guide to broader markets – not just cars but other assets like houses. Luxury vehicles now represent a record 12.48 per cent of annual passenger car and SUV sales.
New and used vehicles are components of household wealth. Further, changes in other assets like homes and shares can affect demand for cars.
What does it mean
• Over 2020, the CommSec Luxury vehicle index has posted annual gains in four of the 11 months. The gains in January and February and June turned out to be false signals. Will November be the month that the broader market turns the corner?
• Interest rates are super low. Foreign travel has been ruled out, making purchases of cars more attractive. Aussies are emerging from lockdown and more restrictions are being eased. Higher home prices are boosting purchasing power for other assets. Taxes have been cut. And the government continues to operate wage subsidy schemes.
• But on the other hand, unemployment has lifted to 7 per cent. There is still uncertainty over the outlook – especially government support measures in 2021. Wage growth is weak. And global car supply is low, constraining sales, as highlighted by higher prices for even used cars.
CommSec Luxury Vehicle index
• To get a gauge on the luxury vehicle market, CommSec tracks the sales of 17 luxury marques: Aston Martin, Audi, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, McLaren, Maserati, Maybach, Mercedes-Benz, Morgan, Porsche and Rolls Royce.
• Sales of luxury marques hit peak levels of 106,658 units in the year to December 2016. But in the year to June 2019, rolling annual luxury vehicle sales were down 19.7 per cent on a year earlier, hitting 4-year lows.
• In July 2019, rolling annual sales lifted for the first time in two years. And the rolling annual measure consistently rose for the following seven months, that is, up until February 2020.
• Annual sales of Lexus were at all-time highs in the year to February and sales of Rolls Royce were just shy of record highs. In February 2020, sales of Aston Martin, Audi, BMW, Ferrari, Lexus, Maserati, Mercedes Benz, Porsche and Rolls Royce were higher than the same month of 2019.
• But then COVID intervened with sales falling in annual terms from March to May. Sales bounced in June in post-lockdown relief before falling over July-October.
Cars and homes
• When home prices were rising strongly from 2013-2017, sales of new vehicles were similarly rising. Australian home prices started easing in November 2017. Annual new vehicle sales peaked in March 2018 and they had been falling ever since, up to the latest gain in November.
• As noted above, after falling for two straight years, the CommSec Luxury vehicle index started lifting in July 2019 and then consistently rose eight straight months through to February 2020. Home prices followed the same pattern but its run ended a little later in April 2020. Home prices started lifting again in October 2020 and have now risen for two straight months.
What is the importance of the economic data?
• The Federal Chamber of Automotive Industries releases regular data on new vehicle and motor cycle sales. Cars and bikes are key purchases for consumers, farmers and businesses.
• CommSec tracks luxury vehicle sales on a monthly basis. Over past years there have been close links between new vehicle sales and home prices and between luxury vehicle sales and the broader car market.
What are the implications for interest rates and investors?
• Home prices are rising at the same time as luxury vehicle sales, broader new vehicle sales and even share prices. It will be important to watch the linkages and trends in each of these markets over coming months,
• The outlook is far from certain. And as noted there are a raft of positive influences in operation at present just as there are a number of barriers and risks. But Australia’s success in suppressing the virus and the upcoming vaccine rollout both give plenty of scope for optimism.
Published by Craig James, Chief Economist, CommSec