Debt levels rose throughout 2017, now at record levels

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.

While the ratios have hit record highs, so too has the ratio of household assets to disposable income, and it is close to its own record high. As at December 2017, it was 961.5 per cent. The ratio of housing assets to disposable income was recorded at 525.3 per cent. Both rose over the quarter and were 4.2 per cent and 4.1 per cent higher, respectively, over the year.

The Property Pulse made the point that 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. Each of these ratios was unchanged from the ratios as at December 2016.

CoreLogic said that it is important to recognise “a few” things about this data.

“Firstly, it is a macro view, so there are households in a significantly weaker position as well as households in a much stronger position,” the financial services company said.

“This group could include marginal buyers, recent buyers and owners in markets where values have fallen substantially, or households that have held their properties for many years.

“Secondly, this data looks at all households, so [it] includes those that carry no housing debt, which is estimated to be around 40 per cent of all households. Also, note that in periods in which dwelling values have fallen, there have been some sharp rises recorded in these ratios.”

CoreLogic also said that, 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.”

It made the point that 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.

“This will mean that a higher proportion of borrowers are reducing their debt.”

CoreLogic said that dwelling values have begun 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,” it added.

“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.”