The ratio of housing debt to disposable income has reached record highs in Australia, new data released by the Reserve Bank of Australia (
RBA) has revealed.
According to the data released last week, the ratio of household and housing debt to disposable incomes climbed to historic highs of 186.3% and 133.8% respectively, with the ratios increasing by 3.4% and 4.3% over the past year.
The preparedness to take on more debt can be mostly explained by falling standard variable mortgage rates over the period from 1988 to 2015.
However,
CoreLogic RP Data research analyst
Cameron Kusher points out that although households have significant debt, particularly for housing, the value of the assets they hold is substantial.
According to the RBA’s data, the ratio of household assets to disposable income 862.8%, the highest it has ever been. Similarly, the ratio of housing assets to disposable income is 471.3%.
“The value of household assets is significantly greater than the value of the debt. Based on this data, the ratio of household debt to assets is 21.6% and the ratio of housing debt to housing assets is 28.4%,” Kusher said.
“Australian households are heavily indebted due largely to residential housing and while high; the value of the assets held is much greater than the debt.”
Kusher said it is also important to consider that the data is a national view.
“Across different regions the ratios are likely to be substantially different. Furthermore, lower interest rates and a fairly strong labour market over recent decades have contributed to a willingness to borrow. Should either of these factors to change it could lead to a dramatic deterioration in the value of these assets while of course the debt would remain.
“Importantly, mortgage arrears remain low and the Reserve Bank has reported that the typical mortgage holder is currently more than two years ahead on their mortgage repayments. This coupled with higher rates of household savings provide a potential buffer if unemployment were to rise sharply or interest rates began to increase.”
