Earlier this week, the Reserve Bank of Australia published its latest household finance ratios which showed the ratio of household and housing debt to disposable income continued to climb over the December 2017 quarter, reaching a new record high.
The ratio of household debt to disposable income was recorded at 188.6 per cent and the ratio of housing debt to disposable income was 138.9 per cent.
Over the past 12 months, the ratios have increased by 4.4 per cent and 4.3 per cent, respectively.
Further, in its Property Pulse, CoreLogic outlined that as the ratio of household and housing debt to disposable income has risen to record highs, so too has the ratio of household assets to disposable income.
“The ratio of housing assets to disposable income is close to its record high,” the report said.
“As at December 2017, the ratio of household assets to disposable income was recorded at 961.5 per cent and the ratio of housing assets to disposable income was recorded at 525.3 per cent. Both ratios rose over the quarter and were 4.2 per cent and 4.1 per cent higher, respectively, over the year.”
It continued: “Based on the ratios of household and housing debt to assets, the RBA data shows that the value of household and housing assets is substantially greater than the value of the debt. At the end of 2017, these ratios were recorded at 19.6 per cent for household debt to assets and 26.4 per cent for housing debt to housing assets.”
Household debt ratios and asset rations “may see falls over the coming years”
CoreLogic said that several aspects of this data was important, including the fact that “there are households in a significantly weaker position (marginal buyers, recent buyers and owners in markets where values have fallen substantially) as well as households in a much stronger position (households that have held their properties for many years)”.
The analytics provider added that the data looks at all households so would therefore include those that carry no housing debt, which is estimated to be around 40 per cent of all households.
CoreLogic continued: “Over recent years, the value of household assets has been increasing at a more rapid rate than the value of debt. Over the past year, there has been a deceleration in the increase in household assets while household debt has continued to expand at a fairly consistent pace. With dwelling values now declining over the coming years, the value of debt may expand at a faster pace than the value of assets.”
According to the property data, information, analytics and services provider, the lending market in Australia is “currently evolving”.
“After very high levels of interest-only borrowing over recent years, recent quarters have seen substantially fewer new interest-only loans written and an increasing number of borrowers voluntarily switching to principal and interest,” CoreLogic elaborated.
“This will mean that a higher proportion of borrowers are reducing their debt. At the same time, we have seen dwelling values begin to fall in major housing markets. Although these falls to date aren’t substantial, they will likely lead to a reduction in the value of housing assets. At the same time, these value falls may result in fewer active buyers as they remain on the sidelines. The result of both of these changes means that both household debt ratios and household asset ratios may see falls over the coming years.”
[Related: Average credit card debt now around $4,200]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.