Category: Household Finance Confidence Index

Property Concerns Drives June 2018 Household Financial Confidence Lower

We have released the June 2018 edition of our household financial confidence index, which draws information from our rolling household surveys. In June the overall index fell once again to 89.7, well below the 100 neutral setting down from 90.2 last month.

Looking at the results across the states, we see further falls in New South Wales and Victoria, a small fall in Western Australia, but small rises in Queensland and South Australia.

Looking across our property segments, those who are renting or living with families or friends returned a small rise, reflecting expected tax changes and increments on some wages for the new financial year. However, those owning or investing in property were significantly less bullish (drowning out any benefit from the tax changes etc.). Property Investors are getting very nervous as prices decline, interest rates are expected to rise, and rental streams are crimped. We noted a rise in vacancy rates in a number of areas.  Owner occupied (OO) households are more positive, relatively speaking, although they have dipped below the neutral setting in April.

Across the age bands, older households are more bullish, with those over 60 years and 50-60 years a little more positive on the back of the recent tax changes from 1 July 2018. On the other hand, younger households are consistently less positive, especially those who purchased property in the past couple of years. Those aged thirty to forty years are under most pressure.  Those with savings in the banks remain concerned.

We can examine the drivers across the dimensions in our survey.  In terms of job security there was a small rise last month, with those feeling more secure up 0.65% to 11.8%. On the other hand, those less secure also rose by 0.78% to 27.9%, with a consistent theme of limited hours being to the fore. We continue to see a rise in households managing multiple concurrent part time jobs to make ends meet.

Turning to income, there was no indication of significant income rises before the new financial year, next month may be different.  52.7% said their incomes had fallen in real terms over the past year, and 44% reported no change. Once again we see evidence of limited hours driving underemployment higher, so on a gross income there is no light at the end of the tunnel, yet.

Costs of living continue to rise with 81.3% seeing their expenditure  rising, thanks to the usual suspects, including electricity, child care, school fees and health insurance costs. There were also signs of pressure from food costs and council rates. Only 2.2% reported said their costs have fallen over the past 12 months. The reported CPI rates appear to be disconnected from reality.

Debt remains a major issue, with mortgages being the front line. Households remain highly leveraged. Some households with lower Loan to Value ratios have been able to switch to other, cheaper loans, but more than 40% of households seeking to refinance have been knocked back in the past 3 months, up from 5% a year ago. A hallmark of the current lending environment. We also continue to see many households adding to their overall debt via credit cards, or other loans. The new positive credit environment which commenced 1 July 2018 will change the game ahead. Credit may become harder to source for some.

On the other hand, households continue to dip into their savings to maintain lifestyle and budgets. 46% of households are less comfortable with the level of their savings compared with a year ago. Many responses highlighted the recent collapse in bank deposit rates as ADI’s try to manage their margins.  Around the same, 46% of household reported no change. Significantly more than one third of households with an owner occupied mortgage had savings LESS than the equivalent of one months mortgage repayment. The other two thirds had significantly larger resources which would insulate them in a down turn, at least for a time.

Finally, we see that more households are reporting a fall in net worth – total assets less loans and other liabilities, with 23% now saying they are worth less (up 0.95% on the month). 28% reported no change over the past year, and 46% reported growth in net worth, helped by the still significant run up in home prices in recent years (now correcting) and rises in stocks in recent months.

Generally those with more assets are still seeing rises compared with an average Australian household, highlighting the two-speed story across the country, depending on affluence.

But we also continue to see a tranche of highly leveraged high net-worth households having to cope with financial pressures as home prices and rentals move against them and the impact of switching from interest only to principal and interest loans hits home.

We would expect a small bounce in the index next month as some incomes rise in the new tax year and other changes take effect. But the impact of the fading property sector, and cash flow constraints are likely to dwarf this impact. The only “get out of jail card” will be income growth above inflation, and as yet there is little evidence of this occurring.  Thus we expect the long grind to continue.

Finally, we see a number of attractor rates from the banks in an attempt to keep mortgage volumes up, but many households cannot access them in the new tighter lending environment. In addition the reduction in rates on some deposit accounts is also hitting the hip pockets of many who rely on income from them. We noted in the survey that a number of households were actively seeking alternative savings vehicles as property and bank deposits look less interesting. We will have to see whether these alternatives are as attractive (in terms of risk-return) as some are claiming. We have our doubts.  But then risk is relative.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the index next month.

 

Financial Resilience – Mortgage Stress on the Gold Coast

Channel Nine asked us to run some analysis in and around the Gold Coast, and also included some other post codes in the analysis.  The story it tells is an interesting one and also gives us some clues about financial resilience, continuing our last discussion.  In particular, we mapped in some of our master household segments, which show how uneven mortgage stress is in practice.

This is based on our household mortgage stress analysis for Queensland to the end of June, and in the past three months’ stress has been rising. When we talk about mortgage stress we are looking at household income and expenditure on a cash flow basis. Those with a shortfall are deemed to be in stress.  Today around 27% of households across the state are having difficulty managing their repayment, which is slightly below the national average of 30%.

However, looking first in detail at the Gold Coast, we also see mortgage stress rising but only in some post codes.

The post code with the largest number of households in in 4226 Robina where 1,200 households are in mortgage stress, which is 28% of all borrowing households in the area. Most households here are relatively mature suburban families, with high expenses and contained incomes.

Coomera, 4209 has just 16% of households in mortgage stress and most of these are older, more wealthy households who are finding costs rising and their incomes severely under pressure.

Turning to Surfers Paradise 4217, 18% or 770 households there are in mortgage stress and these are mainly younger affluent households who have brought expensive places, often apartments now the costs of their mortgages have risen, while their incomes are constrained. This is a recipe for disaster later.

The post code with the largest number of borrowing households is 4211 Narang, with more than 10,000 in the district, only 4.1% are in mortgage stress and most of these are older households nearing retirement, when income is more constrained. However, we see a higher risk of default here should mortgage rates rise, because of these income constraints.

Turning to Coolangatta and the surrounding areas in 4225, here we see a larger number of households under pressure, due to lower incomes and high costs – we call then Battling Urban households. As a result, we estimate that more than 50%, or 332 households are in mortgage stress.

And in Southport 4215, where more than 4,800 households are borrowing, only 6% are in difficulty. Here many households are relatively affluent, and many are planning to, or have retired in recent years. However, as a result of this their incomes may become more constrained down the track so there are around 80 risking default over the next year or so.

So now looking across some of the other areas, in Brisbane, post code 4000, around 22% of borrowing households, or 320 households are in mortgage stress. Most of these are young affluent households, with large mortgages and often on high rise apartments. They paid up big for these, but now their incomes are constrained and costs are rising. This is a real problem.

Over in Logan, 4114, around 33% of households are in mortgage stress, that’s higher than the Queensland average, and that’s about 800 households in the area. Households here are in the mortgage belt, mostly with families, and high living costs as well as their mortgages. Once again incomes are constrained. We think more than 30 might default in the next 12 months.

Finally, in Ipswich, 4305, there are more than 8,000 borrowing households in what we classify as the disadvantaged fringe. Many here are battlers, with limited incomes, but still have mortgage repayments to meet. As a result, more than 40% are in mortgage stress which equates to more than 3,200 households, and around 95 may default over the next 12 months.

So you can see how mortgage stress varies across the region and across household segments. My point is, stress is not just confined to the battlers, it is alive and well in more affluent households too. This of course chimes with our national research as we reported last week – see the link here.

Given the fact that incomes are flat, the costs of living continue to rise – especially electricity, council rates, child care costs and school fees, we expect mortgage stress to continue to build. And the prospect of higher mortgage rates down the track makes it even more of a problem.

My advice for those in difficulty is first draw up a budget so you know what you are actually spending, and second remember that banks have an obligation to assist in times of hardship, so talk to them, do not ignore the problem, it is unlikely to go away on its own. Take action early.

Household Finance Confidence Slides Further In April

The latest edition of our Household Finance Confidence Index, to the end of April 2018, released today, shows that households remain concerned about their financial situation. This is consistent with rising levels of mortgage stress, as we reported recently.

The index fell to 91.7, down from 92.3 in March. This remains below the neutral 100 setting, and continues the decline since October 2016.

The largest falls were in the east coast states of NSW, VIC and QLD. There were small rises in SA and TAS, and WA continued to maintain its lower score.

Analysis by property segment showed that whilst property inactive households continue to languish, there were small falls among owner occupied property active households, who remain just above the neutral setting, while property investors tracked lower again, thanks to tighter lending conditions, the upcoming interest only repayment switch, and the drift down of property values, especially in Sydney.  Property owners still remain more confident relative to those renting.

Looking across the age bands, we see a consistent pattern of falling confidence, with younger households the least confident, driven by job availability, underemployment and flat wages, plus the fact that many do not believe they will ever be able to buy into the property market. Older households, who are more likely to be holding property, remain more confident, relatively speaking.

The index driver scorecard enables us to examine root causes of these shifts in confidence.  First for many households job security remains about the same at 61%, but there was a 1% fall in those who felt more confident, and a 1% rise in those feeling less confident. These movements are linked to job availability, and some seasonal factors as the tourist season winds down.

Turning to household incomes, more than half said their incomes had fallen in real terms, which was 1.4% higher than last month. Only a small number of households reported a real rise in incomes, whilst 44% reported no change. The long term trend of flat incomes is one of the key issues households are facing.

This is in stark contrast to the rising costs of living. 79% of households reported their costs had risen, up 1.4% compared with last month, 16% reported no change in costs, down 2.5%, and just 1.7% said their costs of living had fallen. Looking across categories, the costs of electricity, school fees, health care Costs and fuel all registered.

Turning to debt, we see a continued rise in those households concerned about their levels of debt. Just 3% are more comfortable than a year ago, 50% about the same, and 44% less comfortable.  Households referred to the changes in mortgage rates – with some higher costs still working though, and the problem some had in finding a  better loan to switch to as part of a refinancing transaction.  Interest only property investors were significantly more concerned than a month ago. In addition more households are putting costs on credit cards to manage their finances or accessed other forms of personal credit.

Looking at savings, 47% of households were less comfortable with the savings they hold – up 1% and many are raiding these savings to maintain their cash flows. The number who were more comfortable fell 1%, thanks to lower rates on many bank deposits. Those who were about the same – 50% – benefitted mainly from recent positive stock market movements.

So, finally, the proportion of households who see their net worth higher at 50% is down 2.5%, reflecting falls in Sydney  property prices, while 20% reported higher net worth, mainly thanks to property rises in SA and TAS, and positive stock market movements.

So to  conclude, we continue to see little on the horizon to suggest that household financial confidence will improve. Currently, wages growth will  remain contained, and home prices are likely to slide further, while costs of living pressures continue to grow.

Whilst banks have reduced their investor mortgage interest rates to attract new borrowers, we believe there will also be more pressure on mortgage interest rates as funding costs rise, and lower rates on deposits as banks trim these rates to protect their net margins. In the last reporting round, the banks were highlighting pressure on their margins as the back-book pricing benefit from last year ebbs away.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the index next month.

Household Finance Confidence Slides Again In March

The latest Digital Finance Analytics Household Finance Confidence Index for March 2018 shows a further slide in confidence compared with the previous month.

The current score is 92.3, down from 94. 6 in February, and it has continued to drop since October 2016. The trend is firmly lower.

Across the states, confidence is continuing to fall in NSW and VIC, was little changes in SA and QLD, but rose in WA.

Across the age bands, there were falls in all age groups.

Turning to the property-based segmentation, owner occupied householders remain the most confident, while property investors continue to become more concerned about the market. Those who are property inactive – renting, or living with parents or friends remain the least confident. Nevertheless those who are property owners remain more confident relative to property inactive households.

We can look at the various drivers which underpin the finance confidence index.

We start with job security. This month, there was a rise 6% in households who are less confident about their job security compared with last month,  up to 25.8%. Those who felt more secure fell by 1.5% to 12.1% while 61% saw no change. Availability of work was a primary concern, but the security concerns were more around job terms and conditions, and the requirement to work unsocial hours and weekends.

Turning to concerns about levels of debt, 44.5% of households were more concerned about their outstanding loans, up 1.5% from last month. Under 3% of households were more comfortable with the debt they hold. 49% reported no change this month. Those who were more concerned about debt highlighted concerns about higher interest rates, and the ability to service their current loans in a flat income environment.

52% of households reported their incomes had fallen in the past month, in real terms. This is up 1.5% this month. Just over 1% of households reported a pay rise, and 43% reported no change in real incomes.  More households comprise of members who are working multiple jobs to maintain income.

In contrast, cost of living continues to rise faster than incomes for many households. 77% of households said their costs had indeed risen, up slightly from last month. 18% of households said costs had stayed the same and 3% said costs had fallen. Households said the costs of electricity, petrol, school fees and child care costs all hit home.  Health care costs, and especially the costs of private health care cover also figured in their responses.  More households are seriously considering terminating their health insurance cover due to the rising expense.

Turning to savings, 46% of households were less comfortable with their savings a rise of 1.5% compared with last month. 4% were more comfortable. 50% were about the same. There were ongoing concerns about further falls in interest rates on deposit accounts, and the need to continue to raid savings to support ongoing household budgets.

Finally, we look at household overall net worth. Despite the volatility seen in the financial markets, the main concern captured in answers to this question related to potential falls in property values. 52% said their total net worth was higher, down 3% from last month. 18% said their net worth was lower, a rise of 2% compared with last month. 28% remained the same.  Both those with higher levels of education, and males tended to report more of a rise in net worth. Women were considerable more concerned about the current  trajectory of home prices, and the risks relating to future falls.  Households in regional centres remained more concerned about their net worth, not least because in many areas home prices have risen less strongly in recent years.

So in conclusion, based on the latest results, we see little on the horizon to suggest that household financial confidence will improve. We expect wages growth to remain contained, and home prices to slide, while costs of living pressures continue to grow. There will also be more pressure on mortgage interest rates as funding costs rise, and lower rates on deposits as banks trim these rates to protect their net margins.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the index next month.

Household Financial Confidence Drifts Lower Again

The latest edition of the Digital Finance Analytics Household Finance Confidence Index shows a further drift lower, remaining below the 100 neutral benchmark. It fell to 94.6 in February, down from 95.1 the previous month. This is in stark contrast to improved levels of business confidence as some have reported. Our latest video blog covered the results.

The slide was more significant among those households with investment properties, thanks to higher mortgage rates, concerns about interest only loan resets and lower home prices. In additional net rentals are lower. Owner occupied households also fell just a small amount, mainly because of rising living costs against flat incomes. Those renting, or otherwise excluded from property are the least confident. This continues the long term trend, indicating that property ownership still bolsters confidence to some extent.

The slide was pretty consistent across the states, other than a small lift in WA.  Compared with a year ago, confidence levels in NSW and VIC are significantly lower.

We also see a similar story across all the age bands, suggesting the decline in confidence is similarly widely spread.

To understand the reasons for the falls we can look to the index scorecard. Overall, there was a rise of 1.2% in households feeling less secure about their jobs, compared with this time last year, and a small reduction in those feeling more secure.

Those with savings were less comfortable, thanks to continued falls in deposit rates, and recent discussions about deposit bail-in following passage of the recent APRA Act.  More significantly, more are dipping into their savings, to maintain lifestyle, and so balances are reducing. Many realise this is not a sustainable position.

Just under half of households remain uncomfortable with the amount of debt they hold, around half saw no change over the past year. Concerns related to rising interest charges which are working through, and also ability to maintain mortgage repayments. Some households have resorted to obtain additional credit, either on a card, or separate loan, to maintain their finances. Again many realise this is not a sustainable position.

Costs of living concerns rose, with 76.7%, up 3.84% on last month, households saying that costs of electricity, fuel, rates, child care and school fees all impacting. Only 2.5% of households said their costs had fallen.

Finally, we saw a fall of 3.7% of households who said their net worth had improved, down to 54.6%, mainly explained by changes in the value of property on one hand, and of share prices on the other. 16% said their net worth had fallen. 28.9% said there had been no change.

Based on our research, we see little on the horizon to suggest that household financial confidence will improve. We expect wages growth to remain contained, and home prices to slide, while costs of living pressures continue to grow. There will also be more pressure on mortgage interest rates as funding costs rise, and lower rates on deposits as banks trim these rates to protect their net margins.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the results again next month.

Household Financial Confidence Slips Again In January

Digital Finance Analytics has released the January 2018 update of our Household Financial Confidence Index, using data from our rolling 52,000 household surveys.

The news is not good, with a further fall in the composite index to 95.1, compared with 95.7 last month. This is below the neutral setting, and is the eighth consecutive monthly fall below 100.

This result highlights the ongoing disconnect between business confidence, and consumers who are still reeling from rising costs of living, flat incomes and high debt.

Across the age bands, there was a small rise in those older than 50 years, but younger households, from 20 -50 all tracked lower.

There was a significant drop in confidence in Victoria, which has now been overtaken again by New South Wales as the most confident state. Confidence fell in South Australia and Queensland, whilst there was little change in Western Australia, which recovered somewhat earlier in the year.

Household’s property footprint impacts confidence levels significantly, with those who are not property active and so living in rented accommodation sitting significantly below those who own property.  Owner occupied property holders saw a small uplift this month, reflecting the lower refinancing rates available, and more first time buyers. However, property investors, traditionally the more bullish, continues to languish, dragging the whole index lower.

The segmental scorecard shows that whilst job security rose a little, pressure from large levels of debt rose further, with 44% of households less comfortable than a year ago, and only 3% more comfortable.  Pressure on savings continues, with lower returns on deposits, and more dipping into savings to pay the bills. 46% of households were less comfortable with their savings, compared with a year ago, and 4% only were more comfortable.

Costs of living pressures are very real, with 73% of households recording a rise, up 1.5% from last month, and only 3% a fall in their living costs. A litany of costs, from school fees, child care, fuel, electricity and rates all hit home.

On the other hand, only 1% of households records a real rise in incomes compared with a year ago, while 50% said their real incomes had been eroded, and 45% stayed the same. More evidence that incomes are rising more slowly than costs. Those employed in the private sector are particularly hard hit, with many recording no pay rises for the past 2 years.

Finally, household net worth is under pressure for some, as property prices slide, and savings are being eroded (despite high stock market prices). Whilst 58% said wealth had improved, 15% recorded a fall, and 23% said there was no change.  A further fall in property prices was the overwhelming concern of those holding real-estate, with more than half now expecting a fall in the months ahead. This expectation is already impacting their spending patterns, and have reduced their prospect of buying more property.

So, overall we see the ongoing slide in household financial confidence, and there is nothing on the horizon which is likely to change momentum. We expect wages growth to remain contained, and home prices to slide, while costs of living pressures continue to grow.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the results again next month.

Household Financial Confidence Trudges South In December

The latest edition of the Digital Finance Analytics Household Financial Security Confidence Index, to December 2017 shows another fall, down from 96.1 last month to 95.7 this time, and remains below the neutral measure of 100.

The trend continues to drift south as flat incomes, big debt and now falling home prices all impact.

Analysis of households by their property owning status reveals that property investors are in particular turning sour, as flat net rental incomes, and rising interest rates hit many, at a time when property capital growth is stalling. Owner occupied households are faring a little better, thanks to a range of ultra cheap mortgage rates on offer at the moment, but they are also concerned about price momentum. Those without property interests remain the least confident, as the costs of renting outstrip income growth, and more are slipping into rental stress.

Looking across the states, they all slipped a little, with NSW now well behind VIC (we think the Victorian market is about 6 months behind Sydney, so will drift lower ahead). WA has not improved this time, suggesting that those talking up the market in the west may be over optimistic.

Across the age groups, young households are most concerned about their financial position, but every age group shows a small fall this month – perhaps thanks to the Christmas binge (though we think credit card debt will not rise that much this year) and retail stats may be lower than expected.

Looking in detail at the scorecard, which shows the elements which drive the index; job security is pretty stable, but savings are being raided by many to support their finances, while rates on bank deposits continue to drift lower.  Households are becoming increasingly uncomfortable with the level of debt they hold (they should at a ratio of 2:1, debt to income). Income continues to fall in real terms and costs of living are rising (child care costs and rising fuel costs are concerning many).  We also see a slide in net worth, as home prices, especially in the Sydney region decline. This despite high stock market prices at the moment.

We cannot see any circuit breakers in the mix ahead, so we expect the falling trend to continue into autumn.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the results again next month.

Household Financial Security Takes Another Hit In November

Digital Finance Analytics has released the November 2017 results from our Household Financial Security Index. The index uses data from our household surveys to assess households level of financial comfort.

The index fell to 96.1, which is below the 100 neutral metric, down from 96.9 in October 2017. This is the sixth month in succession the index has been below the neutral point.

Watch the video or read the transcript.

Owner Occupied households are the most positive, scoring 102, whilst those with investment property are at 94.3, as they react to higher mortgage repayments (rate rises and switching from interest only mortgages), while rental yields fall, and capital growth is stalling, especially in Sydney).  Households who are not holding property – our Property Inactive segment – will be renting or living with friends or family, and they scored 81.2. So those with property are still more positive overall.

Looking across the states, households in NSW and VIC are just above the neutral setting, but continue to slipping lower. Households in QLD are below the 100, but up a little, as are those in SA and WA. Western Australian households are the least positive, but somewhat improved.

Looking across the age ranges, younger households are the least positive, and all ages banks fell, other than those over 60 years which saw a small rise.

Looking at the FCI score card, job security is on the improve, reflecting rising employment participation, and the lower unemployment rate.  Around 20% of households feel less secure, especially those with multiple part time jobs.

Savings are being depleted to fill the gap between income and expenditure – as we see in the falling savings ratio. As a result, nearly 40% of households are less comfortable with the amount they are saving. This is reinforced by the lower returns on deposit accounts as banks seek to protect margins.

More households are uncomfortable with the amount of debt they hold with 40% of households concerned. The pressure of higher interest rates on loans, tighter lending conditions, and low income growth all adds to the discomfort. More households reported their real incomes had fallen in the part year, with 50% seeing a fall, while 40% see no change.  Only those on very high incomes reported real income growth.

More households reported a rise in their costs of living, and this month this included higher school fees and child care costs, energy bills and fuel costs. The average cpi of around 2% appears to understate the real life experience of many households.

Finally, household net worth improved for more than 60% of households, but there is a rise in those seeing no growth, mainly as home price growth eases back. Those with share market investments have done quite well in recent months.

Looking ahead, we expect the overall index to trend lower, as incomes remain constrained, and costs of living grow. The property market has a big impact on households level of confidence and the leading indicators are flagging lower outcomes ahead.  However, home prices would need to fall significantly to allow many of those currently unable to afford to buy in to the market.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the results again next month.

 

Household Financial Security Weakens Again In October

The latest edition of the Digital Finance Analytics Household Financial Security Confidence Index to end October shows households are feeling less secure about their finances than in September. The overall index fell from 97.5 to 96.9, and remains below the 100 neutral setting. We use data from our household surveys to calculate the index.

While households holding property for owner occupation remain on average above the neutral setting, property investors continue to slip further into negative territory, as higher mortgage rates bite, rental returns slide and capital growth in some of the major markets stalls.  Those property inactive households remain the most insecure however, so owning property in still a net positive in terms of financial security.

There are significant variations across the states. VIC households continue to lead the way in terms of financial confidence, and WA households are moving up from a low base score. However, households in NSW see their confidence eroded as prices slide in some post codes (the average small fall as reported does not represent the true variation on on the ground – some western Sydney suburbs have fallen 5-10% in the past few months). Households in QLD and SA on average have held their position this month.

Confidence  continues to vary by age bands, although the average scores have drifted lower again. Younger households are consistently less confident, compared with older households, who tend to have smaller mortgages relative to income, and more equity in property and greater access to savings.

Looking in more detail at the FCI scorecard, 63% of household saw no change in their job prospects last month, while 19% felt less secure, especially in WA and SA.  Those with savings were a little less comfortable, reflecting both a net reduction in the amount saved (more households are raiding their savings to cover their costs of living) and lower interest rates on deposits.  Those with shares and other investments benefited from higher stock prices.

The burden of debt weighed heavy on many households with 42% of households less comfortable with their debt, a rise of 1.4% in the month. Some were concerned about potential interest rate rises, while others, especially those on interest only loans, were exercised by the prospect of having to refinance down the track.

More than half of households say their real incomes have fallen in the past year, and 67% said their costs of living have risen, up 4.1% from last month. Utility bills are higher, as are child care costs and school fees. We see more household relying on multiple part-time jobs to bring in sufficient income to pay the bills, and even then many are having to tap into savings to keep afloat.

We see little evidence of income growth in real terms, while credit growth continues at more than three time income. Given the recent slide in property values, and continued rises in living costs, we do not expect the index to move back into positive territory in the next few months.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the results again next month.

 

 

The Growing Gap Between Employment And Financial Security

The September update of the Digital Finance Analytics Household Finance Security Index, released today, underscores the growing gap between employment, which remains relatively strong, and the Financial Security of households.  We discussed this recently on ABC The Business. The Index fell from 98.6 in August to 97.5 in September.

This is below the 100 neutral setting, and continues the decline since December 2016.  Watch the video, or read the transcript.

The state by state view highlights a fall in NSW, while VIC holds higher, and there was a rise in WA from February 2017 lows. This highlights the fact the households across the national are under different levels of pressure.

Tracking by age bands we find younger households are significantly less confident, compared with those aged 50-60 years.  But across the board, the general trend is lower.

Property ownership remains a large factor, with those renting still below those owning property. We also see an ongoing decline in property investor confidence, thanks to tighter underwriting standards, higher mortgage rates, and the reduction in interest only loans availability.

Looking at the scorecard, there was a 4% fall in households comfortable with their savings, as they are forced to raid them to cover ongoing expenses (and the low returns on deposit balances as the banks seek to build margin).  There was a rise of nearly 3% of households who were uncomfortable with the amount of debt they hold, reflecting higher mortgage rates, especially on investment loans and interest only loans, and concerns about future rate movements. Finally, more households reported their overall net worth has deteriorated as home prices came under pressure.

The disconnect is that while people can, in the main, get some work, their earned income is not rising as fast as costs. We also find more households relying of a larger mix of fragmented part-time jobs, which tend to be less predictable.  As a result, we expect the current trends to continue, as momentum in the housing sector ebbs.  There is no obvious circuit breaker available in the current low interest rate, low growth environment.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

We will update the results again next month.