RBA Statement on Monetary Policy Lowers Growth

The RBA released their statement on monetary policy May 2015, today. In it there is no signal about future interest rate movements, but growth forecasts were lowered, to 2% in June 2015. Beyond that, the economy is now expected to grow to 3.25% in the year ended December 2016 (previously 4%). They expect unemployment to rise further to a peak of 6.5%. Inflation is expected to rise later in 2015, a little, but still within the target band. In an investigation into the cycle of dwelling investment, they find that on balance, strength in dwelling investment is likely to be sustained, supported by low interest rates and relatively strong population growth. However, difficulties in obtaining the necessary production inputs, especially suitable land with development approval in some parts of the country, are likely to limit the extent of any further pick-up in dwelling investment growth above what is currently expected.

Growth of Australia’s major trading partners was around its long-run average in 2014. It appears to have eased slightly in the early months of 2015. Commodity prices have been quite volatile over recent months, notably iron ore and oil prices, which have rebounded somewhat from recent lows. Even so, prices of Australia’s key commodity exports overall have declined since the beginning of 2015 and are well down on levels of a year ago. In large part, the declines reflect growth in the supply of commodities globally, although an easing of growth in China’s demand for some key commodities has also played a role. While there has been a further fall in Australia’s terms of trade, the Australian dollar has appreciated by around 3 per cent against the US dollar and in trade-weighted terms since the previous Statement. In China, economic growth has eased further. The Chinese property market remains a source of weakness in the economy and this is flowing through to weaker demand for steel and other construction related products. Indicators for Japanese economic activity have been somewhat mixed early this year, though labour market conditions remain tight and there are tentative signs that wage growth will rise, which is expected to underpin a pick-up in domestic price pressures. Economic growth in the rest of east. Asia looks to have slowed a little in the March quarter.

Growth in the US economy moderated in the March quarter, largely reflecting the temporary effects of disruptions related to severe weather and industrial action in west coast ports. Meanwhile, the US labour market has continued to improve and wage growth has picked up. Economic activity in the euro area is recovering at a gradual pace.

Despite slightly weaker-than-expected conditions early in 2015, growth of Australia’s major trading partners is expected to remain around its long-run average pace in 2015 and 2016. Growth will continue to be supported by very stimulatory monetary policies in most parts of the world. Core inflation rates are below many central banks’ targets. The Federal Open Market Committee is not expected to start increasing the US policy rate until the second half of 2015, while the People’s Bank of China has recently taken steps to boost liquidity and has adopted a more accommodative monetary policy stance more generally. The European Central Bank and the Bank of Japan continue to expand their balance sheets in line with their previously announced policies. Accordingly, finance remains readily available amid very favourable pricing conditions, notwithstanding the sharp rise in sovereign yields in recent days. Also, the low oil price is providing support to Australia’s trading partners, most of which are net oil importers.

The available data suggest that the domestic economy continued to grow at a below-trend pace in the March quarter. Dwelling investment and resource exports appear to have continued growing strongly and there is evidence that the growth of household consumption has been gaining some momentum over the past six months or so. However, investment in the mining sector is declining noticeably and non-mining business investment remains subdued.  Moreover, indicators of nonmining business investment intentions suggest that a significant pick-up is not in prospect over the next year or so.

Conditions in the established housing market remain strong, especially in Sydney and to a lesser extent in Melbourne. Outside these cities, however, housing price growth has declined. Forward-looking indicators, including building approvals, suggest that dwelling investment overall will continue to grow strongly over coming quarters. Housing credit growth has been little changed at a pace that is around the long-term growth of household income. Growth of housing credit for investors remains close to 10 per cent on an annual basis, with no sign of growth either increasing or decreasing in the period ahead. Very low interest rates and increasing housing prices helped to support a pick-up in the growth of household consumption over 2014. More recent retail sales data suggest that consumption growth maintained its pace into the early months of 2015. Measures of consumer sentiment remain a little below average.

Export volumes continue to increase, aided in the March quarter by the absence of substantial weather-related disruptions to mining and shipping operations across the country. Resource export volumes are expected to continue growing as new production capacity for iron ore and liquefied natural gas comes on line over 2015. However, the decline in commodity prices in recent quarters has put pressure on higher-cost producers in the iron ore and coal sectors. While the substantial declines recorded in mining investment have been much as expected, producers have responded to lower  commodity prices with further cost-cutting. Some smaller, higher-cost producers of iron ore and coal in Australia have announced the curtailment of production, although the affected mines accounted for only a relatively small share of Australian production in 2014.

Non-mining business investment has remained subdued even though many of the conditions for a recovery have been in place for some time. Access to funding does not appear to be constraining business decisions; lending rates on the outstanding stock of business (and housing) loans have continued to edge lower and business credit growth has been picking up. Also, surveys suggest that business conditions in the non-mining sector are close to average. However, forward-looking measures of business confidence remain a bit below average and non-residential building approvals are relatively subdued. Business liaison suggests that firms have spare capacity and are still waiting to see a more substantial improvement in demand conditions before they commit to major new investment projects. In line with that, surveys of investment intentions do not indicate that there will be much of a pick-up in non-mining capital investment over the next year or so.

There continues to be excess capacity in the labour market, though the most recent labour force data suggest that employment growth has increased over the past six months or more, to be above the rate of population growth. The participation rate has picked up slightly, and the unemployment rate has been stable at about 6¼ per cent since mid 2014. Forward-looking indicators of labour demand, which had picked up somewhat over the past year, have been little changed over recent months and point to modest growth of employment over coming months.

Consumer price inflation declined over the past year, reflecting substantial falls in fuel prices and the repeal of the carbon price, although the recent rebound in fuel prices should add to headline inflation somewhat in the near term. Measures of underlying inflation remained around ½–¾ per cent in the March quarter and 2¼–2½ per cent over the past year. Domestic cost pressures are generally well contained, partly because of the extended period of low growth of wages, with the result that non-tradables inflation was about 1 percentage point below its decade average over the year to March. Consumer prices related to housing increased by marginally more than their historical average, driven by inflation in new dwelling costs, which in turn reflects the strength of dwelling investment. Tradables inflation (excluding volatile items and tobacco) has picked up in response to the depreciation of the Australian dollar over the past two years or so.

Growth in the Australian economy is expected to continue at a below-average pace for a little longer than earlier anticipated and to pick up gradually to an above-average pace over 2016/17. The key forces shaping the outlook are much as they have been for some time. Recent data suggest that consumption growth has continued to pick up gradually, supported by very low interest rates and relatively strong population growth. Forwardlooking indicators continue to suggest that dwelling investment will continue to grow strongly in the near term. The momentum building in household demand will, in time, provide some impetus to nonmining business investment, even though indicators of investment intentions suggest that non-mining business investment is not likely to pick up over coming quarters, as had been expected at the time of the February Statement. Export growth is also expected to continue making a substantial contribution to GDP growth. Mining investment, fiscal consolidation and the falling terms of trade are expected to impart an offsetting restraint on growth over the next couple of years at least. The profile for GDP growth implies that there will be excess capacity in the labour market for longer than previously thought. The unemployment rate is expected to rise gradually and peak a little later than envisaged in the February Statement, before gradually declining towards the end of the forecast period. Wage growth is not expected to increase much from its current low levels over the next two years or so. As a result, domestic labour cost pressures are likely to remain well contained and underlying inflation is expected to be consistent with the inflation target throughout the forecast period.

The risks to the outlook for the global economy appear roughly balanced, other than for China where risks remain tilted to the downside. Weakness in the Chinese property market and constraints on the ability of local governments to fund infrastructure projects continue to represent key sources of uncertainty for China’s economic growth and its demand for commodities. Any significant change in the demand for steel in China would affect the prices of iron ore and coking coal. Also, if high cost producers of iron ore in China were to curtail production significantly, this would place upward pressure on prices.  Developments in China and their impact on commodity prices are also likely to affect the outlook for the exchange rate, which is another important consideration for the forecasts for the domestic economy. Further depreciation of the exchange rate seems both likely and necessary, particularly given the significant declines in key commodity prices, although increasingly divergent monetary policies in the major economies are also likely to have an important bearing on exchange rate developments.

Domestically, the forecasts embody a further gradual pick-up in consumption growth and decline in the saving ratio. However, if households respond to changes in interest rates and asset prices to the same degree as they did prior to the global financial crisis, this would support higher consumption growth and imply a lower saving ratio than embodied in the forecasts. Alternatively, if households are less inclined to bring forward their consumption than has been factored into the forecasts, perhaps because they do not wish to increase their leverage, consumption growth would be weaker and the saving ratio higher than forecast.

Business investment remains a significant source of uncertainty. Mining investment is expected to fall significantly, but the size of the fall and the impact of lower-than-expected commodity prices remain uncertain. There are also significant risks to the forecasts for non-mining investment. While the latest capital expenditure survey implies a weaker profile for non-mining business investment over the next year than currently forecast, the first estimate of investment intentions for 2015/16 is subject to considerable uncertainty and the survey covers only about half of actual non-mining business investment. Moreover, many of the preconditions for a recovery in non-mining business investment are in place, so it is possible that the recovery could begin earlier or be stronger than currently forecast. The adjustment to the decline in the terms of trade and mining investment over recent years has resulted in a rise in the  unemployment rate and a pronounced decline in wage growth in the economy. The unemployment rate is expected to rise a little further from here, before it begins to decline. It is possible that employment growth will be stronger than expected and the unemployment rate will not increase to the extent anticipated, although this could probably only be achieved with ongoing moderation in wage growth.

The Reserve Bank Board reduced the cash rate by 25 basis points at its February meeting. At its March and April meetings, the Board kept the cash rate steady, but indicated that further easing may be appropriate. Over that period, incoming data have generally provided more confidence that growth in household expenditure is gaining some momentum, consistent with the forecasts presented in the February Statement. However, other information, including the forward-looking indicators of investment, suggested that overall growth will remain below trend for longer than had previously been expected. Accordingly, the economy is likely to be operating with a degree of spare capacity for some time yet and domestic cost pressures are expected to remain subdued and inflation well contained. The Board noted that although financial conditions are very accommodative, the exchange rate continues to offer less assistance than would normally be expected in achieving balanced growth in the economy. It also noted that while housing price growth is very strong in Sydney, it has declined across much of the rest of the country, and there has been little change to the growth of housing credit in recent months. The Bank is working with other regulators to assess and contain risks that may arise from the housing market.

At its May meeting the Board judged that, under these circumstances, it was appropriate to reduce the cash rate by a further 25 basis points to provide some additional support to economic activity. This could be expected to reinforce recent encouraging trends in household demand and is consistent with achieving the inflation target. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.

Unemployment Rate Increased Slightly To 6.2% in April 2015

The ABS data for April 2015 employment was released today.  Australia’s estimated seasonally adjusted unemployment rate for April 2015 increased 0.1 percentage points to 6.2 per cent, compared with 6.1 per cent for March 2015. In trend terms, the unemployment rate decreased by less than 0.1 percentage points to 6.1 per cent. The seasonally adjusted labour force participation rate remained steady at 64.8 per cent in April 2015.

The ABS reported the number of people employed decreased by 2,900 to 11,724,600 in April 2015 (seasonally adjusted). The decrease in employment was driven by decreases in full-time employment for males (down 47,900) and part-time employment for females (down 10,700). These were offset by increases in male part-time employment (up 29,700) and female full-time employment (up 26,000).

The ABS seasonally adjusted aggregate monthly hours worked series increased in April 2015, up 17.8 million hours (1.1 per cent) to 1,651.9 million hours. The seasonally adjusted number of people unemployed increased by 7,000 to 769,500 in April 2015. This was driven by people who looked for part-time work only, which increased by 9,800 to 228,000.

Retail Sales Growth Slows In March

The latest Australian Bureau of Statistics (ABS) Retail Trade figures show that Australian retail turnover rose 0.3 per cent in March following a rise of 0.7 per cent in February 2015, seasonally adjusted.

In seasonally adjusted terms the largest contributor to the rise was department stores (3.8 per cent), clothing, footwear and personal accessory retailing (2.2 per cent), food retailing (0.4 per cent) and other retailing (0.1 per cent). There were falls in household goods retailing (-1.0 per cent) and cafes, restaurants and takeaway food services (-1.1 per cent).

In seasonally adjusted terms there were rises in Queensland (0.7 per cent), New South Wales (0.3 per cent), Victoria (0.2 per cent), South Australia (0.3 per cent) and Tasmania (0.5 per cent). There were falls in Western Australia (-0.3 per cent), the Australian Capital Territory (-0.5%) and the Northern Territory (-0.8 per cent).

The trend estimate for Australian retail turnover rose 0.3 per cent in March 2015 following a 0.4 per cent rise in February 2015. Through the year, the trend estimate rose 4.3 per cent in March 2015 compared to March 2014.

Online retail turnover contributed 3.0 per cent to total retail turnover in original terms.

Foreign Property Investment Up – FIRB

The Foreign Investment Review Board recently published their annual report for 2013-2014. Whilst we question whether they capture the full picture, the report shows that real estate and services related applications accounted for around 76 per cent of the value of approvals in 2013-14. China was the largest investor in 2013-14 in terms of the value of all approvals (17 per cent of the total value), followed by the United States and Canada. Three (yes three!) proposals were rejected in the year.

In 2013-14, 24,102 proposals received foreign investment approval, compared with 12,731 in 2012-13. The real estate sector had a significant increase in approvals with 23,428 approvals in 2013-14,compared with 12,025 approvals in 2012-13.

FIRB-2014-RE-Count

Approvals in 2013-14 were given for $167.4 billion of proposed investment. This represented a 23.4 per cent increase on the $135.7 billion in proposed investment approved in 2012-13. In real estate, approved proposed investment was $74.6 billion in 2013-14, compared with $51.9 billion in 2012-13. Proposed investment in commercial real estate increased, from $34.8 billion in 2012-13 to $39.9 billion in 2013-14. Proposed investment in residential real estate also increased, from $17.2 billion in 2012-13 to $34.7 billion in 2013-14.
FIRB-2014-ValueIn 2013-14, three proposals were rejected (compared with no rejected proposals in 2012-13). Of the three proposals rejected, two related to residential real estate and the other related to the rejection in November 2013 of Archer Daniel Midlands Company’s proposed takeover of GrainCorp Limited.

The real estate sector was the largest destination by value, with approvals in 2013-14 of $74.6 billion (an increase of $22.7 billion from 2012-13). In 2013-14, the other major sectors were: services (excluding tourism), with approved proposed investment of $53.4 billion (an increase of $27.5 billion); and mineral exploration and development, with approved proposed investment of $22.4 billion (a decrease of $23.1 billion).

FIRB-2014-SectorReal Estate accounted for 44.6% ot the total value. Here is the more detailed breakdown.

FIRB-2014-RE-Data-DetailFor the first time China ($27.7 billion) was the largest source country for approved proposed investment in 2013-14, overtaking the United States ($17.5 billion). Other major source countries of approved proposed investment in 2013-14 were   Canada ($15.4 billion), Malaysia ($7.2 billion) and Singapore ($7.1 billion).

FIRB-2014-COuntry

On 25 February 2015, the Government released an options paper on Strengthening Australia’s Foreign Investment Framework. The paper is available on the Treasury website.  The Government has announced that a $15 million cumulative threshold will apply to acquisitions of interests in agricultural land from 1 March 2015. More announcements are expected very soon on how the regime will be reinforced, with fines for potential investors who flout the rules, professionals who assist them, and rules to stop investors from profiting from any potential capital appreciation if they are found out, and forced to sell.

Home Prices Higher In April – CoreLogic RP Data

CoreLogic RP Data April Home Value Index results confirmed that values across Australia’s combined capital cities increased by 0.8 per cent in April 2015, down from a 1.4 per cent month on month increase in March. Overall dwelling values shifted higher over the past month across every capital city except Canberra where values showed a 1.5 per cent drop over the month.

According to the April Home Value results, capital city dwelling values have been trending higher over the past 35 months, recording a cumulative increase of 25.3 per cent between the end of May 2012 and April 2015. While the combined capitals trend of dwelling value growth has been substantial, the rate of growth across the Sydney housing market stands head and shoulders above the other capital cities over the cycle to date. Sydney dwelling values are now 40.2 per cent higher relative to the May 2012 trough. If you factor in the previous 2009/10 phase of growth, Sydney values are now up 65.4 per cent post GFC. Melbourne is the only other capital city that comes close to this measure where dwelling values are 52.3 per cent higher post GFC. The next highest rate of growth is Darwin where values have moved 26.5 per cent higher, followed by Canberra (19.8%), Perth (15.2%), Adelaide (12.2%), Brisbane (8.0%) and Hobart (1.2%). The rate of growth in Perth and Darwin has slowed substantially in line with the wind down of major infrastructure projects associated with the resources sector and the housing market in Canberra has also softened post federal election.

RPDataIndexMay2015The performance of houses versus apartments has shown some interesting trends of late. Detached homes are continuing to outperform the multi-unit sector, with capital city house values up 8.3 per cent over the past year while unit values have risen by a lower 5.6 per cent. This trend is more noticeable in the key growth markets of Sydney and Melbourne. Sydney house values are up 15.5 per cent over the past year while unit values have risen by 9.7 per cent. The over-performance of houses compared with units is more apparent in Melbourne where house values are 7.6 per cent higher over the year compared with a growth rate of just 1.9 per cent across the unit market. A similar trend is evident across most of the capital cities and can likely be attributed to the higher supply levels in the apartment markets which are keeping a lid on the rate of capital gain.

Most other housing market indicators remain strong. Auction clearance rates have surged to new record highs after the February rate cut and have trended slightly higher over the final two weeks of April. Additionally, the number of homes being advertised for sale has been trending lower, particularly in Sydney where listing numbers are now lower than the number of properties being advertised for sale in Melbourne, Brisbane and Perth. The short supply of advertised homes in Sydney is likely to be one of the key factors driving local dwelling values higher, with buyers pressured to make a purchase decision quickly with minimal negotiation on asking prices due to few alternative housing options available for sale.

The performance of the housing market is increasingly varied across the capital cities. Sydney is continuing to dominate the headlines with such a high rate of capital gain, while Melbourne is also showing a solid performance. At the other end of the spectrum, Perth, Darwin, Hobart and Canberra are showing weaker results while Brisbane and Adelaide and are roughly keeping pace with inflation. In fact, outside of Sydney and Melbourne, the next highest rate of annual capital gain can be found in Brisbane where dwelling values are up a comparatively paltry 2.2 per cent.

Sydney Rentals Unaffordable For Many – Anglicare

The Rental Affordability Snapshot (RAS) was originally developed by the Social Action Research Centre at Anglicare Tasmania to highlight the lived experience of looking for housing whilst on a low income. An audit of rental properties determines the extent to which on the nominated day a person on a low income is able to find housing that is both affordable and appropriate for their needs. The RAS has been coordinated by the national peak body, Anglicare Australia. This data relates to Sydney and the Illawara.

In April 2015, with the aim of highlighting the difficulty in finding an affordable and appropriate rental property for low income households. As part of this national project, Anglicare Sydney examined about 15,000 rental advertisements in Greater Sydney (including the Central Coast) and the Illawarra, over the weekend of the 11th April, using online and print media. The total number of listings has increased from more than 13,000 properties in the 2014 Snapshot and almost 14,000 properties in 2013. Results were sorted into 17 smaller Statistical Areas for analysis and reporting purposes. The findings revealed that for many households, finding appropriate and affordable housing is almost impossible.

Affordability of rental properties for people on income support: These households include single parents, people living with a disability, the elderly and frail aged, full-time students, and people struggling to find paid employment. For income support recipients, finding an affordable and appropriate rental dwelling which costs less than 30 percent of their household income is a difficult challenge, with few low-cost, private rental dwellings being available. If 2-bedroom properties were excluded for families with more than one child, there were only 52 unique properties in Greater Sydney and 19 in the Illawarra that were affordable and appropriate without placing them into rental stress (paying over 30 percent of income on rent). If the criteria were widened to include 2-bedroom properties for families with 2 children then 58 properties in Greater Sydney and 33 properties in the Illawarra were affordable and appropriate. Compared with previous results, the number of suitable rental properties (58) was similar in Greater Sydney (43 properties in 2014), although this remains less than one percent of total advertised properties. The number of affordable and appropriate properties in the Illawarra region (33) was also similar to 2014 (38 properties) and 2013 (42 properties). The vast majority of affordable and appropriate properties were located in the Outer Ring of Sydney (at least 20km from the CBD). It is concerning that there were no rental properties in Sydney that were suitable for single people on Youth Allowance, Disability Pension or Newstart without placing them into rental stress.

Affordability of rental properties for minimum wage households: Rental affordability was also examined for those people earning the minimum wage, including couple families, single parents and single people. If 2-bedroom properties were excluded for families with more than one child, there were 868 unique properties in Greater Sydney and 261 in the Illawarra that were affordable and appropriate without placing them into rental stress. If the criteria were widened to include 2-bedroom properties for families with 2 children then 2,302 properties in Greater Sydney and 521 properties in the Illawarra were affordable and appropriate. Compared with previous results, the number of suitable rental properties for people on the minimum wage has increased in Greater Sydney (up from 1,799 properties in 2014), while it has remained the same in the Illawarra Region (509 properties in 2014). While all Statistical Areas in Sydney contained at least one suitable property, the majority were still located further away from the CBD in areas such as the Central Coast, Blue Mountains or in South Western Sydney.

Payment of 30-45% of income as rent: Anglicare Sydney also explored the availability of rental properties in the 30-45%-of-income band that would place a household into rental stress. Using this criterion, there were 1,148 additional suitable listings in Greater Sydney and 310 in the Illawarra, where households relying on income support would have spent between 30 and 45 percent of their income. For households earning the minimum wage, there were 5,121 additional suitable listings in Greater Sydney and 298 in the Illawarra in the 30-45%-of-income band.

A range of policy solutions are needed to improve rental affordability for low income households, including the urgent need for increases in the supply of social housing, raising the rate of Commonwealth Rent Assistance and increasing the Newstart Allowance. There needs to be firm and long-term commitment to the supply of affordable housing from all levels of government, community and business sectors.

housing-crisis-infographic

Land Prices Driven Higher – HIA-CoreLogic RP Data

The latest HIA-CoreLogic RP Data Residential Land Report provided by the Housing Industry Association, and CoreLogic RP Data, signals disequilibrium between demand and available supply in vacant residential land.

Whilst the number of residential land sales fell by 11.8 per cent over the year to the December 2014 quarter, the weighted median residential land value increased by 2.8 per cent in the December 2014 quarter to be up by 6.3 per cent over the year. The increase in the weighted median value was driven primarily by Sydney, with significant growth also evident for Perth and Melbourne.

As with all aspects of this housing cycle, there are wide divergences in land market conditions around the country – this is clearly evident across the six capital cities and 41 regional areas covered in the Residential Land Report. Construction of detached houses looks to be peaking for the cycle, but there is unrealised demand out there because of that lack of readily available and affordable land.

The price of residential land per square metre increased in Sydney, Melbourne and Perth in the December 2014 quarter, with Sydney remaining the country’s most expensive land market by some margin. Across regional Australia, the most expensive residential land markets are the Gold Coast and the Sunshine Coast in Queensland, and the Richmond-Tweed region in New South Wales. The least expensive markets can be found in the South East region of South Australia, and the Mersey-Lyell and Southern regions of Tasmania.

LandSupplyApr2015

Overseas Money Powering New Residential Development – ANZ

In a report released by ANZ today they say that while the Australian economy looks to the non-mining sector to drive economic growth in the shadows of rapidly slowing mining construction, strong residential building has provided a flicker of hope. Lower interest rates have eased housing affordability constraints and provided some stimulus to the cyclical upturn in housing construction. However, the boom in residential development especially high-rise apartments in the major centres can be traced to funding from overseas, rather than it being related to low interest rates in Australia.

Unemployment Trend Unchanged At 6.2%

The ABS data shows that Australia’s estimated seasonally adjusted unemployment rate for March 2015 was 6.1 per cent, compared with a revised 6.2 per cent for February 2015. This represented a decrease of less than 0.1 percentage points. In trend terms, the unemployment rate was unchanged at 6.2 per cent.

The seasonally adjusted labour force participation rate increased to 64.8 per cent in March 2015 from 64.7 per cent in February 2015. The ABS reported the number of people employed increased by 37,700 to 11,720,300 in March 2015 (seasonally adjusted). The increase in employment was driven by increases in full-time employment for both males (up 24,800) and females (up 6,700).  The ABS seasonally adjusted aggregate monthly hours worked series increased in March 2015, up 4.8 million hours (0.3 per cent) to 1,630.4 million hours. The seasonally adjusted number of people unemployed decreased by 1,500 to 764,500 in March 2015.

Expectations were of a rise to 6.3 or 6.4 percent, and some analysts were expecting the rise to make a case for the RBA to cut the cash rate again in May. The data may suggest otherwise.

DFA Household Finance Confidence Index Falls In March

We have released the latest edition of the DFA Household Finance Confidence Index, the results of are derived from our household surveys, averaged across Australia. We have 26,000 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.

The overall index fell from 92.1 to 91.97 in March, which continues the overall declining trend since February 2014.

FCIMar2015

Looking at the elements within the index, nearly 60 percent of households are enjoying a growth in their net worth, mainly thanks to further rises in house prices and positive stock market movements. On the other hand, there was a rise of 1.5 percent in those who have seen their net worth fall, these are households who predominately do not own property.

FCINetWorthMar2015

There were small movements in the costs of living data, with school fees and child care being two elements which have hit some households hard, though offset by falls in the costs of fuel. We also see the impact of falling exchange rates on overseas purchases, especially from the US. Finally, rentals are increasing faster than incomes for some households, especially in cities on the east coast.

FCICostsMar2015

Household real incomes are relatively static, though there is little evidence of rising income. Less than 4 percent of households recorded a rise in real terms.

FCIncomeMar2015

Some households are a little more comfortable with their level of debt, this is directly linked to the fall in RBA rates in February. However, there was also a rise in those households who were concerned about the debts they owed, with a rise of 0.57 percent. On average females were more concerned than males, and older households more worried than younger ones.

FCIDebtMar2015

There was a small rise in households who were more comfortable with their savings position, but more are less comfortable, and this is directly linked to the current low interest rates offered for deposits, and the prospect of even lower rates, and the quest for higher yield elsewhere looking ahead. Females were significantly more concerned than males.

FCISavingsMar2015

Finally, looking at job security, there was a significant rise in those households who are concerned, with a drop in those who felt more secure than last year by 1.7 percent and a rise in those who fell less secure. That said, more than 60 percent registered as about the same. We noted some state variations, with those in WA significantly more concerned than those in NSW.

FCIJobsMar2015 Note that the detailed state by state and segmented data is not publicly released. We will update the index again in a months time.