- Household debt relative to disposable incomes has reached a record high of 189%.
- This ratio is an average across all Australian households, of which only a third have a mortgage. This suggests the ratio of debt to disposable income is much higher among those with mortgages and even higher amongst those that recently borrowed for historically elevated house prices.
- 669,000 out of the 3.1 million mortgaged households, according to Digital Finance Analytics, are now experiencing mortgage stress. This is a 1.5% from the previous month. This can be attributed to such things as a continued trend in static incomes, the rising cost of living, and greater under-employment.
- As property analysis from CoreLogic notes: “While the ratios of household and housing debt to disposable incomes are at record-high levels, so too are the ratios of household and housing assets to disposable incomes. The ratio of housing assets to disposable incomes sits at 910.6 percent having increased by 23.2 basis points over the [December 2016] quarter and 42.2 basis points over the year.”
- However, although the asset side of a household balance sheet is in prime condition, if the housing bubble bursts, the value of assets could fall precipitously – but the size of the debt would remain the same. One side is fixed and the other if subject to fluctuations.
- Interest rates are key to maintaining stable economic conditions, as – regardless of the nominal value of one’s assets- if the ability to service it remains within the reach of the household’s income, economic harm is avoided.
- However, from a household’s perspective, being asset rich and cash poor means eventually those assets will need to be sold. If too many houses are sold at once, prices fall and the cycle moves into a downward spin.
- APRA and ASIC are both taking more vigilant approaches to practices of banks in efforts to discourage the continuation of rampant growth in lending to investors and the selling of interest-only loans.
- APRA chairman, Wayne Byres, has also suggested forcing banks to hold more capital against mortgages to enhance the stability of the banking system.