NationalNEWS

High income households more likely to be over-indebted than lower income households: CoreLogic Property Pulse

High income households are less likely to be debt free and are more likely to be over-indebted than lower income households.

This is the main insight from the 2015-16 household income and wealth survey conducted by the Australian Bureau of Statistics (ABS).

The results, which includes household debt and over-indebtedness, considers a household to be over indebted if their debt is either three or more times their income, or 75 per cent or more of the value of their assets.

Cameron Kusher, Core Logic research analyst, said the results were unexpected.

According to the results, households with the lowest disposable income are the least likely to be over-indebted while the fourth quintile households are most likely to be over-indebted.

“On these measures the ABS considers 21.6% of households to be over-indebted, 51.9% of households to be not over-indebted and 26.4% of households have no debt.”

“Lower income households are more likely to be debtfree compared to higher income households which is reflective of many lower income households having paid off their debt,” Mr Kusher said.

“The data shows that 94.6% of households which are either not over-indebted (37.8%) or without debt (56.8%) have no persons in the labour force which is reflective of retirees or people that are in a position to choose not to work.”

Households with mortgage debt are more likely to be over-indebted than those households that either rent or own their home outright; only 3.5% of households that own without a mortgage are considered to be over-indebted compared to 47.0% of household with a mortgage and 9.1% of rental households.

Lone person households are likely to be those persons who are living debt free (45.9%), while single family households with a couple and dependent children (10.7%) are the least likely to be living debt free. Interestingly, the data indicates that group households are among those least likely to be over-indebted (16.2%) as well as being amongst the least likely to be without debt (20.8%).

Mr Kusher said, “This probably reflects the fact that university students and young professionals are most likely to live in group households while studying and prior to purchasing their own home.”

The data also shows that households that are over-indebted spend 24.2% of all goods and services expenditure on housing costs compared to not over-indebted households spending 16.8% of their expenditure on housing costs. The report shows that on average, over-indebted households spend more than double ($150.54) each week on their mortgage repayments than households which are not over-indebted ($73.44).

Mr Kusher said, “Households with no mortgage debt, most of which are retiree households, are least likely to be over-indebted.

On the other hand, higher income households with a family that have outstanding mortgage debt are those most likely to be over-indebted.”

“While you could say that families of working age with higher incomes are better able to service their debt, interest rate hikes or reductions in the value of their assets could have a significant impact on their ability to service their debt.”

This Week’s Auction preview

The number of properties scheduled to go to auction this week is expected to surpass last week as the busiest week for auctions since June, with CoreLogic currently tracking 2,592 auctions across the combined capital cities, up from last week when final results saw 2,510 auctions held.

Over the same week last year, volumes were lower than what we are currently tracking this week (2,480). Sydney is set to see a higher volume of auctions this week, with 983 homes scheduled to go to auction across the city, increasing from last week when 916 auctions were held. In Melbourne, auction activity will remain relatively steady week-on-week, with 9 fewer auctions scheduled this week (1,256), when compared to last week’s final results (1,265).

Looking at the smaller auction markets, activity is set to rise in Adelaide, Canberra, Perth and Tasmania, while Brisbane will see fewer auctions scheduled this week compared to last.

Victoria has all of the busiest suburbs for auction this week, with 23 homes scheduled to go to auction across Brunswick, while Hopper Crossing is set to host 19 auctions, Reservoir with 18 and Northcote and Richmond both with 16 auctions each.

Last week’s auction summary

Last week, the combined capital cities saw auction volumes reach their highest levels since June, with a total of 2,510 held, returning a final auction clearance rate of 66.7 per cent, down only slightly from the week prior when a 66.9 per cent clearance rate was recorded across a lower 2,258 auctions. One year ago, clearance rates were significantly higher over the corresponding period, with 76.2 per cent of auctions clearing, across a lower volume of auctions (2,149).

The final auction clearance rate across Melbourne fell slightly last week, down to 71.4 per cent from 71.8 per cent the previous week, while volumes increased week-on-week, with 1,265 auctions held last week, up from the 1,111 over the week prior.

While the Sydney market continues to show signs of softening, with final auction clearance rates for the city falling to 64.2 per cent; the last time clearance rates were this low across the city was late 2015, however volumes reached their highest since June, with 916 auctions held last week, increasing from 826 the previous week.

Adelaide, Brisbane and Canberra all saw an improvement in clearance rates last week, when compared to the previous week, while Perth’s final clearance rate fell.

Of the non-capital city regions, Geelong recorded the highest clearance rate, with 72.4 per cent of auctions successful, while the Sunshine Coast held the highest number of auctions last week (88).

Show More

Azal Khan

Azal Khan was a in-house features writer for Elite Agent Magazine.