Category: Household Finance Confidence Index

Household Financial Confidence Slides [Again]

We continue to release the data from our household surveys to end November 2019. Today we look at our Household Financial Confidence Index, which examines how households are feeling about their financial status, relative to a year ago.

The index dropped again to 83.5, which is a new low in the series, and well below the previous 87.69 back in 2015. This level of concern suggests households will be keeping their wallets firmly in their pockets, so expect more retail weakness and household consumption easing lower ahead. The one “bright” spot was that more households are now believing their net worth is higher, thanks to the perceived recovery in home prices, and recent stock market highs, though offset by lower returns on deposits, flat incomes in real terms and rising costs. Recent rate cuts and tax refunds do not seem to have touched the sides!

The declines in confidence are broad based, with those mortgage free still below neutral, while those with a mortgage still more negative, and those in the rental sector (without property) even more down than that.

The news about rising home prices as impacted property investors, despite the continued weakness in rental income, thus we see a rise from very low levels for this cohort, from 77.01 to 78.45 in the month. On the other hand, property active owner occupied households were a little less positive, moving from 97.1 to 97.05. Property inactive households also drifted lower.

Across the states there was a significant decline in NSW, from 88.4 to 86.2, and this is connected with rising household budget pressures, and large mortgages in Sydney, plus the fires and drought across the state. VIC fell a little too, while there was a small rise in WA.

Across the age bands, those aged 20-30 reported the largest fall, thanks to pressure on incomes and rising costs. A number of new first time buyers who bought in recent months reside here. On the other hand, older cohorts are a little more positive this month, thanks to recent stock market rises, and some better home price news. We note, for example the headline of 6% plus rises in prices across Sydney have been interpreted by households in ALL post codes as appropriate to them – which shows the impact of a tricky headline, remembering that price rises are much higher in the more affluent upmarket postcodes.

Turning to the moving parts within the index, job security is under pressure, thanks to underemployment, weakness in retail and construction, and the upcoming holidays. 7.8% felt more secure than a year ago, down from 8.23% last month. 38.65% said they were less secure compared with 38.12% last month.

Incomes remain under pressure, with just 4.3% saying in real terms their incomes were higher than a year back, down from 5.3% last month. Pressure on household budgets is a pincer movement, as incomes are compressed (and returns from some investments and deposits fall). But costs of living are rising. In fact 94.2% reported higher costs than a year back, thanks to higher prices for fuel, electricity, school fees, childcare, and every needs. Only 1.3% said their costs of living had fallen.

Debt remains a major issue for many households, despite the rate cuts. Some households are paying down their mortgage faster than required, and are using the lower rates, and tax refunds for this. In an era of uncertainty, this is not a surprise. We also see a rise of households under pressure turning to payment options like AfterPay to support their purchases. Just 2% of households were more comfortable with their debt levels than a year ago, while 48% were less comfortable.

Some households have been building their savings (using lower mortgage rates and tax refunds) to build resilience for later. However, lower interest rates on deposits are creating its own pressures, while those with stocks and shares are seeing some dividend pressures too. Around 20% of households have insufficient funds to cover a month without work. Just 0.42% of households were more comfortable than a year ago, 49% were less comfortable and 45% about the same.

Finally, net worth – assets less liabilities, reacted to the higher reported home prices so that 27% say their net worth was better than a year ago up from 24% last month, while 43% were lower, and 24.65% about the same. Net worth was also boosted by high stock market prices and exchange rate movements.

So in conclusion, the household sector remains under pressure, and as a result financial confidence is bruised beyond immediate repair, that is until such time as wages growth really starts to accelerate in real terms. In addition the broader discussions about lower cash rates and quantitative easing are also helping to degrade confidence. The only bright spot, real or illusory, is the recovery in home prices (which are of course not uniform across the main centres and post codes). On this front, households are hoping for the best. We will see.

Household Financial Confidence Erodes Some More

The bad news keeps coming, with the latest DFA Household Financial Confidence Index for October at the lowest ever of 83.7.

This continues the trends of recent months, since dropping through the neutral 100 score in June 2017.

The falls were widespread across our property segments, with investors still way down, under the pressure from low net rental yields, the need to switch to principal and interest from interest only, and worries about construction defects. Owner occupied households were less negative, but those renting continue to struggle with higher levels of rental stress.

Across the states there were significant falls in NSW and VIC, whilst other states continued to track as in recent months. The main eastern states are now lower than WA and SA, which is a surprising new development.

Across the age bands, the falls are mainly among lower aged groups, while those aged 50-60 are feeling more positive thanks to recent stock market rises.

This is also reflected across our wealth segments, with those holding property mortgage free and other financial assets more positive (though still below neutral) compared with mortgage holders and those not holding property at all.

We can then turn to the moving parts within the index, based on our rolling 52,000 household surveys. Employment prospects continue to look shaky, both in terms of under-employment and job security. Jobs in retail and construction and also finance are under-pressure, and the impact of the drought is also hitting some areas. 8% of household felt more secure than a year ago, the lowest read ever in this part of the survey. More households have multiple part-time jobs.

Income remains under pressure, with 51% saying their real incomes have fallen in the past year, while 5% reported an increase, often thanks to switching jobs or employers.

Household budgets are under pressure as costs of living rise, with 91% reporting higher real costs that a year ago, this is a record in our survey. Expenses rose across the board, from child care, health care, school fees and rates. Food costs were higher partly thanks to the drought. There was a small fall in the costs of power, and fuel, but not enough to offset rises elsewhere. Mortgage interest rate falls were blotted up quickly, and the tax refunds where they were received were much lower than people had been expecting.

Some households are deleveraging (paying down debt) , while others are more concerned about the amount they owe from mortgages to credit cards and on other forms of credit. 48% of households are less comfortable than a year ago. Lower interest rates are only helping at the margin.

Savings are under pressure from several fronts. Some households are tapping into savings to keep the household budget in check – but that will not be sustainable. Others are seeing returns on term deposits falling away, yet are unwilling to move into higher-risk investment assets. Those in the share markets are enjoying the current bounce, but many expressed concerns about its sustainability. 49% of households are less comfortable than a year ago, while 47% are about the same. Significantly around 27% of households have no savings at all and would have difficulty in pulling $500 together in an emergency. Around half of these households also hold a mortgage. Worth reflecting on this with 32.2% of households in mortgage stress as we also reported today!

And finally, we consider net worth (assets less liabilities). Here the news is mixed as some households are now convinced their property is worth more citing the recently if narrowly sourced data on rises in Sydney and Melbourne. However other households reported net falls. 24% of households said their net financial position was better than a year ago (up 1.3%), while 45% said they were worse off (down 1.6%). There are also significant regional differences with households in Western Australia and Queensland significantly worse off, while some in inner city areas of Sydney and Melbourne claimed significant advances.

So, overall the status of household confidence continues to weaken, which is consistent with reduced retail activity, and a focus on repaying debt. Unemployment is lurking, but underemployment is real. We also see weaker demand for mortgages ahead, and we will discuss this in more detail in our upcoming household survey release. Without significant economic change, these trends are likely to continue for some time. If the RBA and Government is relying on households to start spending, they will need a very different strategy – including a significant fiscal element. Lower interest rates alone will not cut the mustard.

Household Financial Confidence Crushed Some More

In our latest release to September 2019, the DFA Household Financial Confidence Index fell again, having move sideways more recently. In essence households are simply reflecting that rate cuts, a lower dollar and the international bad news from Trump’s Trade Wars, Brexit and Hong Kong are all making them more concerned, and less willing or able to spend. On top of that the local pressure on wages and rising costs, plus the heavy toll on savers with funds on bank deposit are also hitting. Finally, property is not in recovery mode and buying intentions are down again, after being a little higher after the election. The economy is in deep trouble. The Government and Regulatory response is not cutting the mustard from a household and small business perspective.

Overall the index fell to a new low of 84.2, compared with 85.5 last time, this is a significant one month fall.

All wealth segments faded, but those holding property without mortgage, and with market investment (stocks and shares) did a little better than those with a mortgage and those renting. All three segments are below their 100 neutral setting.

Across the property segments, those owner occupied households with a mortgage are relatively more positive compared with property investors who continue to see their rental streams under pressure, and now even those renting or living with family or friends are also reacting to costs of living rises, and flat incomes. We also registered a number who say landlords recently lifted their rental agreements, adding to the pain.

Across the states, the falls are relatively uniform, with the confidence levels bunching at low values in the eastern states. Falls in SA and QLD were offset by a slight rise in WA. But NSW and VIC both fell.

Across the age bands, those aged 50-60 registered a significant decline as falling income from bank deposits hit home following the recent cash rate cuts. All other segments fell too. This is a broad based decline.

Turning to the moving parts, household incomes remain under pressure, with little evidence of any recovery in the system. More than half have real incomes lower than a year ago.

Costs of living continue to rise, and recent petrol prices are making an impact, along with council rates and childcare costs. Food bills are also rising and here the impact of the drought is hitting some costs hard now. 92% of households reported a rise in living costs compared with one year ago.

Savings are under pressure, as many households continue to tap into their savings to support their life-styles. But those with savings in bank deposits continue to see rates falling, meaning that incomes from deposits are being crushed. That said, of the 3 million relying on income from savings, less than one third are considering seeking out higher risk saving options to boost returns. The rest are moderating their spending patterns to suit the new low rate environment. However, there are limits to this approach as rates continue to tumble. Those on fixed term rates are facing a real challenge when their funds are due to roll next!

Rate cuts have helped at the margin, but there was a further rise in those feeling less comfortable about their level of debt. We see a rise in concern about making monthly repayments on time, but also an issue with paying off debt in due course (given home price growth is anemic at best). Many continue to pay down credit card debt, though a minority continue to accumulate more debt, in order to balance their budgets.

Employment prospects are under pressure in the retail and construction sectors, across all states. There was a 1% fall in those feeling more comfortable, to 8.6%. But there is a marked fall in NSW and VIC and there residential construction has stalled. Employment prospects are brighter in the Public Sector, so Canberra is showing more positive news here.

Finally, net worth has taken a hit again, as property values are not rising for many (and the evidence of negative equity is growing). The oft quoted recent rises in Sydney and Melbourne clearly do not tell the full story. Property investors with units across the country are increasingly nervous about the true value of their property in the light of the poor quality certification and construction issues which are rife in the sector.

So, there is really little here to offset the gloom. Whilst lower cash rates may translate to lower mortgage rates for some, this is not sufficient to counter the negative news. And more households are seeking to pay down debt in an attempt to protect themselves ahead.

This signals more economic weakness ahead.

Household Financial Confidence Firms A Tad

Digital Finance Analytics has released the latest in our series of the Household Financial Confidence Index to end of August 2019. The reading this month was just a little higher at 85.45 (85.43 last month), but still well below the 87.69 back in 2015, which was the previous low, and significantly below the neutral setting. No wonder households are not spending!

Across our wealth segments, those owing property mortgage free remain the most confident, while those with mortgages are less confident, along with renters.

Within the property segments, owner occupied borrowers are a little more confident this month as the mortgage interest rate cuts work through. Property investors are still well below the property inactive group, as rental streams are easing back, and values of high rise apartments in particular are being questioned, thanks to the recent coverage of faulty construction and flammable cladding. In most centers those seeking to rent have more choice, and lower rental options than a couple of years back.

Across the states, the confidence factor are clustering as NSW and VIC continue to weaken, while SA and WA both move a little higher.

Looking at the moving parts within the index, job insecurity rose further in the month, up 1.38% to 38%. We continue to see higher levels of underemployment and fragmented employment, reflecting the changing work environment, gig economy jobs plus falls in the retail and construction sectors. More jobs are in the lower-paid health care and aged care segments. The drought is also causing issues now for some.

Savings are taking a battering as bank deposit rates continue to tumble, and other households continue to raid savings to maintain lifestyle. There are of course limits to how long this can go on. More than 3 million households rely on income from deposit accounts, and some are considering more risky options, while others have decided to sit tight and just spend less. Again, the myopic focus on mortgage rates misses the issues many savers are facing.

Lower mortgage interest rates have provided some relief to mortgage borrowers now, up 0.68% this month to 3.12%. However many households remain gridlocked with large outstanding debts, which often include credit cards as well as a mortgage. 47% are less comfortable than a year ago. Refinancing is available to some, but those with negative equity, of higher LVR loans are locked into more expensive loans.

Incomes remain under pressure, with 5.32% of households reporting higher real incomes than a year ago, up 0.57% compared with last month. 51.1% reported real incomes have fallen in the past year and 40.8% no change. The recent changes to weekend rates and healthcare rates in VIC are showing. Public sector employees continue to do better than the private sector.

Costs of living remains a black spot, with the official cpi just not reflecting the lived experience of many households. 91.6% said real costs were higher than a year ago. The rising price of vehicle fuel, healthcare and childcare costs, plus energy bills and rates all registered as significant issues. Everyday costs are also higher.

Net worth has risen for 24% of households over the last year, up from 21.84% the prior month. However 46.88% reported a lower net worth than a year ago, thanks to lower property values, changes in share prices and lower levels of savings.

In summary therefore the recent moves in property prices higher in some locations is having a net positive effect on households financial confidence – which illustrates the extent to which property is wired into household balance sheets (at least for those who own property). The critical question is of course whether this will turn into a Bull trap as the international environment worsens, or whether the recent moves to cut rates and reduce lending standards will have a material positive impact on household financial confidence ahead. Plus all the spruiking, of course.

That said cost pressures, incomes pressures, and lower returns for savers are still having a significant impact. The housing sector alone will not turn household financial confidence around. The journey back to a neutral level will be long and hard won.

Household Financial Confidence Slides Some More In July

We are releasing the latest edition of our household financial confidence index today. This is an extract from our 52,000 rolling household surveys, were we ask about their level of confidence, compared with a year back.

Any post election bounce is well past, as the two interest rate cuts are seen as a negative, first because it signals higher risks, and second, while mortgage holders may see some reduction in their monthly repayments, those relying on income from deposits – more than three million households – are seeing their incomes being clipped. Many of these are unwilling to switch to higher risk saving vehicles so they just adjust their spending and life-style down to match.

The index hit a new low of 85.43, well below the neutral level, and significantly below the previous low of 87.69 in 2015.

The performance across the states continues to bunch together, as NSW and VIC continue their slide. WA, which had been improving a little, also reversed. SA also fell this month.

Across the Property Segments, owner occupied property owners are relatively more confident thanks to reduced mortgage repayments and some patchy better news on home prices, but property investors are concerned about falling rents, the emerging high-rise building defects issue and little prospect of capital gains. More than 20% of property investors are now in negative equity, especially those holding relatively new high-rise units in the high-growth corridors.

Across our wealth segments (those holding property with no mortgage, those with a mortgage and those renting) all three are under the neutral setting. The recent gyrations on the stock markets have also shaken confidence further.

Looking at the drivers of the index, job security remains an issue with 9.7% of households feeling more confident, 36.6% feeling less confident, and 51% reporting no change. The structure of employment continues to fragment, with households reporting more part-time jobs, including some in the gig-economy.

Income remains under pressure with 4.75% reporting a rise (including some low-paid sectors), up from last month, but 50.5% report a fall in real terms (further validation of the recent HILDA report that there has been no real wages growth in many years), and 40.7% said there had been no change.

On the other hand the costs of living continue to outstrip wages growth, so the pincer movement continues. 91.4% said their costs were higher than a year ago, 6.6% said no change and 1.7% said costs had fallen. Categories of spend which have risen include child care costs, health insurance (more are cancelling this spend as a result), fuel costs, electricity costs and council rates.

Households are carrying significant debt burdens, from mortgages, credit cards and personal loans. The recent rate cuts have triggered a quest for cheap loans, and mortgage refinancing (and equity extraction). 2.4% of households are more comfortable than a year ago, 48.6% are less comfortable (despite falling rates) and 47.3% have stayed the same. We continue to see some households who are locked out of switching to a less expensive mortgage thanks to negative equity, or because they fall outside current lending standards.

Savings rates continue to fall for many households, especially some older Australians who have moved into self-funded retirement. Many hold funds on deposit with the banks outside superannuation arrangements. The falls in returns on deposits is now highly significant and many are under pressure. In addition other households are dipping into savings to manage their budgets. 51.58% of households are less comfortable than a year ago, 46.3% about the same and 0.27% more comfortable. In addition, households with share market investments are worried by the recent gyrations and increased volatility and the prospect of lower dividends from the financial sector.

Finally, looking at changes in net worth (assets less liabilities, including loans), 21.8% reported an improvement, mainly thanks to stock market and precious metal price rises, 26.4% reported no real change, while 46.6% reported a drop in net worth. Falls in property values, plus some refinancing and equity removal are the main reasons for these falls. Some property values are down for than 30% and this is creating an significant erosion of confidence. That said, those holding real property are still relatively more confident, and their faith in property in as yet undiminished as the best place to put their money. As we will show in our upcoming survey results, expectation to transact in the next 12 months is rising now.

Household Finance Confidence Tanks Some More

After the slight twitch of positive sentiment following the election in May, the DFA Household Finance Confidence Index fell again, to a new low of 85.54.

Whilst the RBA rate cut may offer some borrowers the prospect of improved cash flow (when the changes propagate through to the regular repayment), just as many households bemoan the continued cuts in savings rates. So, net, net there is no improvement in financial outcomes, and in fact more are concerned that lower RBA rates signals more trouble ahead.

Across the states, WA showed a significant slide in confidence thanks in part to rising mortgage default and delinquencies, and very high underemployment. Most other states are bunched together, whereas a year or two back, VIC and NSW were streets ahead.

By age, younger households with mortgage debt registered a small improvement, while older households with savings went the other way on lower bank term deposit rates. Many of these will simply hunker down, and spend less, and will not largely benefit from the upcoming tax cuts. Older households resist the temptation to move to higher risk alternative savings vehicles, they too just spend less.

The property segmentation reveals that property inactive and investor households both reported lower levels of confidence, while owner occupied home owners were slightly more positive on the rate cuts news.

All three of our wealth segments remain below neutral on the index, indicating a significant deterioration over the past couple of years. Even those with property and no mortgage remain below the neutral 100 setting.

Within the moving parts of the index, job insecurity increased, with 37.4% reported as less secure than a year back, up 0.64% on the previous month. Around half of households saw no change, though underemployment continues to push higher.

Savings continue to take a battering with more households dipping into them to secure their budgets, and lower returns on bank deposits – especially term deposits. On the other hand, share portfolio holders are fairing a little better – though with higher risks of course. Over 52% are less comfortable than a year ago.

In terms of the debt burden nearly half are less comfortable, despite the rate cuts, while 48% are about the same as a year ago – down 1.46% on last month.

In terms of costs of living, the pain continues, with 91% saying their costs, in real terms are higher than a year ago. Only 1.33% said their costs of living had fallen. Households specifically mentioned higher council rates, fuel costs, electricity, school fees and child care costs.

Income remains under pressure, with 4% saying their incomes had increased in real terms in the past year, compared with 50% saying their real incomes had fallen. 41% said their incomes were about the same.

And overall net worth (assets less loans) rose for 23% of households – thanks to higher share prices mainly, while 47% reported a fall in net worth – thanks to property price falls, and reduced savings. 27% reported no change. As yet any recovery in home prices has not fed through into more positive results.

So, more evidence of the pressure on households, and so far the measures taken by the RBA and the Government have had no net positive impact on household confidence. As noted above, even those with property and no mortgage remain below the neutral 100 setting.

As a reminder this data comes from our rolling 52,000 household surveys, with 1,000 new added each week. This is data up to Monday 8th July.

Household Financial Confidence Bounces Post Election

We have released our latest financial confidence index which is derived from our rolling 52,000 household surveys. The index moved a little higher since the election, reflecting some more positive vibes from property investors, at the margin, and from those holding property more generally.

It is all relative however, as the current read of 86.34 is up from April’s 85.9, but the overall measure is still in deeply negative territory.

Looking at the segments by wealth, there was a bounce in those with mortgages, and also those renting or living with family or friends – but again still in negative territory. Those with property, and no mortgage hardly reacted at all.

Analysis across our property segments shows a move up from property investors (now expecting no changes to capital gains and negative gearing), a slight improvement from owner occupied borrowers, and a kick up from those renting.

By states, the convergence of recent times continues, although NSW and VIC saw a slight improvement, while WA and QLD saw a deterioration (linked to higher default rates in these states).

Younger household scores fell again, but there was a bounce in those aged 40-50 and 50-60, directly linked to the slight change in property investment sentiment.

Within the moving parts, there was little movement in job security, with 36% still feeling less secure than a year ago. Public sector jobs look less secure now.

Savings remain under pressure, with lower rates on bank deposits, though higher returns from shares. The prospect of lower deposit rates took the “less comfortable” rating down 2.88% compared with the previous month.

Debt remains a concern, with 47% worried by the amount of credit they hold, while 49% are feeling about the same as a year ago, down 2.16% on the month before.

Income remains under pressure. Given the lack of real wages growth this should be of no surprise. 40% said they had seen no change in the past year, and 50.5% said, in real terms their income had fallen.

On the other hand, costs of living remain a challenge, with 91% saying costs have risen over the part year. Electricity, child care, health costs, rates, and food all registered, suggesting the CPI continues to understate the real experience of many households.

And finally, net wealth deteriorated for 46% of households compared with a year ago, thanks to falling property prices. 26% said there was no change and 24% higher ( down 1.63% on last month). Stock market performance helped to offset the property falls.

So the question becomes, will the slight tick-up in property related sentiment stick, or is the overall index set to fall further, as reality dawns – low income, rising costs, big mortgages, compressed returns on bank deposits, and weaker job prospects?

Put like that, the small falls in mortgage monthly repayments, and income uplifts for some may not be sufficient to support the index ahead. We will see.

Household Financial Confidence Decays – Again!

We have released the April 2019 edition of our confidence index, based on our rolling 52,000 household survey. The index fell again, to an all time low.

All wealth segments declined (even those without a mortgage), but those leveraged up are really concerned now.

Property Investors continue to take a bath, thanks to lower capital values, falling rental returns, switching from interest only to principal and interest, and fears about negative gearing changes.

The selected states continue to converge.

Younger households are the most concerned. Older, less leveraged households are more positive relatively, but still below long term averages.

In the video we look at the various drivers to the index, but the conclusion is that more households are seeing their net worth declining. Much of this is thanks to property values continuing to fall.

Regretfully, I cannot see anything on the horizon to change this trajectory. So expect more falls ahead!