Based on data from the Reserve Bank, the ratio of household debt to disposable income and housing debt to disposable income has increased over the June 2014 quarter with housing debt now at a record high level.
Each quarter, after the Australian Bureau of Statistics releases its data on financial accounts, the Reserve Bank (RBA) releases their ‘Household finances – selected ratios’ data sheet. The information provides a timely overview about the level of household leverage.
The latest data for June 2014 has just been released and it showed that at the end of the June quarter, total household debt to disposable income had increased to 151.1%. The figure had increased from 150.2% the previous quarter and 147.7% a year earlier. The ratio is now at it’s highest level since March 2008. As the first chart shows the ratio has been relatively flat over recent years but is now starting to rise once more.
When you look at the key driver of the increase in the ratio, it is no real surprise that leverage in the housing market is the major driver. As at June 2014, 137.1% of the 151.1% total household debt figure or a record high 90.7% was housing debt. In fact the 137.1% ratio of housing debt to disposable income is a record high and up from 136.1% the previous quarter and 133.3% a year earlier. As was the case with household debt, you can see that housing debt was relatively unchanged for a number of years but has recently started to rise once again.
The RBA breaks this data out further to owner occupiers and investors. Of that 137.1%, 90.9% (or 66.3% of the 137.1%) was to owner occupiers with the remaining 46.2% (or 33.7% of the 137.1%) to investors. The proportion of overall housing debt to owner occupiers is trending lower at the moment while investor debt rises.
The data also includes information on the value of assets to disposable income. According to the statistics, the ratio of total household assets to disposable incomes is 801.9%. This figure is now at its highest level since March 2008. This 801.9% is split into housing assets which account for 433.6% and financial assets which make up the remaining 342.2%. The housing assets figure is at its highest level since June 2008 while the financial assets figure is lower over the quarter, down from 342.9% in March.
The chart highlights the trends over time. What they indicate is that households have consistently stored a majority of their wealth in housing assets as opposed to financial assets. Unfortunately the data is not available prior to 1988 so we don’t have visibility on the results prior to that time.
Chart 4 looks at the annual change in the ratio of housing debt to disposable income plotted against the annual change in combined capital city home values. Although the ratio of housing debt to disposable income is rising it is doing so at a much more moderate pace than it has in the past despite quite strong growth in home values. It is difficult to know exactly why this is happening however, the RBA has reported in its latest Financial Stability Review that the typical mortgagee has more than 2 years’ worth of mortgage repayments sitting in mortgage offset or redraw facilities. This may go some way to explaining the moderate rise. Alternatively, a rise in foreign buyers could also be a contributing factor. Other potential reasons include lower loan to value ratios or investors purchasing using significant equity in their principal place of residence.
The data highlights that household and housing debt is increasing and with home values continuing to rise we would anticipate a further rise in both measures over the coming quarter. The RBA has previously stated that further increases in household debt are not ideal. With housing debt at a record high level and investor activity at near record highs, I don’t think it is any surprise that the RBA is looking to macroprudential tools to take some of the heat out of the housing market.
For many individuals in the special needs community, the housing crisis that currently exists for individuals with disabilities appears to have no end in sight. In Iowa, however, a recent government grant may be able to help residents of that state combat the crisis by providing funds that may be used for accessible, affordable and appropriate housing for individuals with disabilities. According to a recent press release, the Iowa Finance Authority's Board of Directors has recently awarded 2.3 million in federal dollars to affordable housing initiatives. The Iowa Finance Authority (IFA), was founded in 1975 with the goal of undertaking programs to work on housing issues for individuals with low to moderate incomes. The organizationoffers a number of different programs that address a variety of housing needs and issues. The money was federally funded under the Department of Housing and Urban Development's HOME program - this program offers non formula grants and awards to states and localities with the intention of funding activities that buy, build, and/or renovate affordable housing for individuals with low-to-moderate incomes. The money, which was disbursed through one HOME rental award and 6 HOME tenant based rental assistance awards, will help 326 Iowa families access affordable housing.
When you look at the key driver of the increase in the ratio, it is no real surprise that leverage in the housing market is the major driver.
More fuel to the fire, another card stacked on top of an already monumental house of cards. A bust is in the wind alright, a big correction, long overdue in Australian property markets. I just can't believe the public has showed such an utter lack of restraint since the GFC. They were told to save, told to pay down debt, but they have done the exact opposite?
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