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Core Logic Property Pulse: household debt and asset wealth growing at the same time

Household debt and asset wealth is growing at the same time, according to RBA data analysed by CoreLogic.

Household finance data released by the Reserve Bank (RBA) each quarter looks at the ratios of household debts and assets to disposable income.

The latest RBA update shows that while households debt is growing, asset wealth is simultaneously increasing. According to the RBA, the ratio of household debt to disposable income was recorded at 193.7% at the end of June 2017 and now sits at a record-high having increased by 2.0% over the quarter and by 3.9% over the year.

According to CoreLogic research analyst Cameron Kusher it was not surprising to see that most of this debt is housing related; the ratio of housing debt to disposable income is recorded at 136.4% having increased by 1.4% over the quarter and 3.9% over the year.

Mr Kusher said, “Clearly, household and housing debt has increased over time relative to disposable incomes. Of note is that since the financial crisis, the rate of escalation has slowed.”

Further data from the RBA reveals that of the 136.4% ratio of housing debt to disposable income, 103.2% is held by owner occupiers with the remaining 33.2% held by investors.

At the end of June 2017 the ratio of household assets to disposable income was recorded at 935.6% and the ratio of housing assets to disposable income was 516.5%, both of which were record highs. Over the past year household assets and housing assets have increased by 6.6% and 7.8% respectively, well in excess of the increase in household and housing debt.

By comparing the ratios of assets and debt the RBA also produces ratios of household and housing debt to assets. Mr Kusher said, “The data reiterates that although debt levels are high, at this stage debt is well supported by assets which are valued substantially higher.”

Over recent years the ratios of household and housing debt to assets have actually been falling. In June 2017, the ratio of household debt to assets was recorded at 20.7% and the ratio of housing debt to assets sat at 26.4%.

According to Mr Kusher, a big contributor to the declining ratio of debt to assets over recent years has been the ongoing fall in interest rates to their current lows. At the end of June 2017 the ratio of household interest repayments to disposable income was 8.7% and for housing it was 7.1%. Lower interest rates also mean that where there is a debt, debtors have the ability (if they choose) to maintain previous repayments which in turn means additional debt is repaid as interest rates fall.

He said, “The latest household finance data from the RBA highlights that Australian households are heavily indebted, largely due to housing. While debt levels are high, the value of household and housing assets are, at this stage, considerably greater than the level of debt.”

“Of course, if household and housing asset values begin to fall in the future, the accompanying debt may not fall at the same rate and that remains the main concern with the ongoing increase in household and housing debt.

“Although Australia survived the financial crisis with much less damage than many other countries, of note, was the fairly sharp rise in the ratio of household and housing debts to assets over that period. A more sustained downturn could potentially see a much greater increase in these ratios as asset values fall but the debt against these assets remain,” Mr Kusher said.

Upcoming auctions

The number of homes scheduled to go auction this week is set to rise across the combined capital cities; after last week’s public holiday and grand final slowdown, with 2,118 currently scheduled to take place, which is over double the volumes seen last week when only 969 auctions were held.

Melbourne is expected to see volumes pick up again this week, with 1,011 properties scheduled to go under the hammer, after volumes dipped significantly last week amid the grand final hype (122). While In Sydney, volumes are set to see an uplift to a lesser extent with 770 auctions currently scheduled, rising from 607 last week.

All of the remaining capital cities will see an increase in activity this week, with the exception of Brisbane where fewer auctions are scheduled this week compared to last.

Overall activity this week is expected to be lower than volumes from one year ago when final results recorded a total of 2,290 auctions held across the combined capital cities over the equivalent week.

Victoria has all the busiest suburbs for auctions this week, with 26 properties scheduled to go to auction in Reservoir, followed by Craigieburn with 16 and Glen Waverley with 15 scheduled auctions.

Summary of last week’s results

Last week, the combined capital city final auction clearance rate remained virtually unchanged; despite the significantly lower volumes seen over the grand final and public holiday long weekend.

A final auction clearance rate of 66.3 per cent across 969 auctions was recorded last week, from 66.2 per cent across a substantially higher 2,782 auctions over the week prior, while one year ago 872 auctions were held with 75.8 per cent clearing.

Across Melbourne, the final clearance rate increased to 87.0 per cent last week, although the number of auctions held was significantly lower, with only 122 held, down from 1,361 over the week prior when a 70.6 per cent rate of clearance was recorded. In Sydney, both the final clearance rate and volumes fell week-on-week, with 64.9 per cent of the 607 auctions clearing, down from 65.9 per cent across 1,033 auctions the previous week.

The remaining capital cities all saw an improvement in clearance rates last week, however volumes were much lower in all capital cities except Brisbane.

The busiest non-capital city region last week was the Gold Coast, with 43 auctions; however Hunter recorded the strongest clearance rate at 71.4 per cent.

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Azal Khan

Azal Khan is the in-house features writer for Elite Agent Magazine.