The truth about our debt

Stephen Koukoulas says Australians have little to worry about high household debt:

….According to the latest data complied by the RBA, household assets are growing very strongly, aided by a building up in savings, unrelenting growth in superannuation holdings, growth in bank deposits and of course, from rising house prices.

While household debt is indeed just under 200 per cent of disposable income, household holdings of financial assets, which includes superannuation, direct share holdings and deposits, is now over 400 per cent of income…..

….The total value of housing in Australia is …. over 500 per cent of disposable income.

…. for every $1 of debt that the house sectors has, they have $5 of assets, which is a loan to value ratio of 20 per cent.

…..while the asset side of the household balance sheet remains healthy, the debt side will remain a non-problem.

That’s the problem with averages, they conceal a multitude of sins. Many Australians own houses without a mortgage. Probably the same group own most of Australia’s financial assets. They are financially secure, no doubt, and help to make the averages look reasonable.

But there are vast numbers of Australians in the mortgage belt with low financial assets and high loan-to-value ratios (LVRs) on their household mortgage. Any rise in interest rates would cause them financial stress and the impact of this would flow through the entire economy.

From Elizabeth Tilley at the Courier Mail:

Almost 50,000 households are at risk of defaulting on their home loans in the next 12 months and nearly a third of homeowners are in mortgage stress, new figures show.

The latest mortgage stress and default modelling from Digital Finance Analytics for the month of September reveals more than 905,000 households are estimated to be in mortgage stress — 45,000 more than there were the month prior.

….Of those households, 18,000 are in severe stress, which means they are unable to meet home loan repayments with their current income.

Not quite as rosy as the averages may seem.

Source: The truth about our debt

Hat tip to Macrobusiness.

2 thoughts on “The truth about our debt

  1. Brian says:

    The ‘authorities’ are slowly strangling the cat by withdrawing liquidity. Steve Keen’s thesis may yet play out as at the next federal election one party may take the sword to the housing market ‘investor benefits’ and produce the catalyst for the catastrophe to unfold..

  2. John says:

    As correctly stated a large unstated proportion of the assets is in residential real estate a leveraged bubble collapse of which would dramatically alter those ratios.

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