Risky business – 3 furniture companies to be wary of

Founder and Chief Investment Officer of Montgomery Investment Management
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Most importantly, the housing sector and credit growth is trending the wrong way. Falling house prices have a negative impact on households’ perception of their own wealth.  Record leverage also has a negative impact on the capacity to spend more, and slowing housing activity – construction and renovations – has a negative impact on the incomes earned by tradies and contractors.

In the background is the Australian and NZ data, released by South African-listed Steinhoff, which owns Freedom Furniture, Snooze and Plush furniture stores in Australia. Excluding the more recently acquired Fantastic Furniture business, same store sales growth of minus 6% was delivered in the six months to March. In the March quarter, it is estimated sales fell by just over 9%.

Investor drop off

Credit conditions appear to be tightening. The value of all home loans (excluding refinancing) fell by 1.2% in June18, compared to the month prior, and fell by 8.4% compared to the year prior. It was the largest fall since April 2016. Investors have been the single biggest reason for the weakness, with loans to investors falling 18.1% year-on-year.

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