We have released the June 2019 mortgage stress results, based on our running 52,000 household surveys. We found that 32% of households are now dealing with mortgage stress, a record, meaning they are having cash flow issues managing their finances and mortgage repayments.
This translates into more than 1,063,000 households spread across the country, and nearly 71,000 risk default in the year ahead, even taking into account the fall in mortgage repayments represented by the recent rate cuts. Banks loses will rise.
This is because the costs of living continue to run ahead of incomes, while households have larger debts (and are being enticed to buy in the current complex risk environment).
The top post codes in stress are those in the outer suburban fringe areas, where many large estates are still being built, and households are super-highly leveraged.
The RBA released their March 2019 data on household ratios. Whilst these series include small business finance, and include households not borrowing, the trends continue to tell the story of debt, and more debt.
The household debt to income ratio is at a record 189.7, while the housing debt to income ratio was 140.1, again a record and the owner occupied housing debt to income ratio was also up, to 109.3. These are high numbers, on a trend and international comparable basis. Households are drowning in debt.
However the asset to income ratios tell another story. As home prices have fallen, so the ratio has decreased, assets are down relative to income. The exception are financial assets, which benefited from the rise in stock prices this year.
The ratio of interest to income continues to rise because households are borrowing at a faster rate than their incomes are growing, helped of course by lower interest rates. This ratio is below that before the GFC because rates have dropped. And this is the one ratio spruikers turn to to defend the high debt levels – but it is myopic, and going in the wrong direction.
Finally, the RBA data debt to assets shows the pincer movement as home prices fall, and debt rises. This is now heading towards the highest we have seen.
The obvious conclusion is that the debt burden is too great, mortgage stress will go on rising, until the balance between debt and income is restored.
The recent loosening of lending standards simply pours more fuel on the fire. Households are being used a canon fodder in the vein attempt to keep the faltering economy afloat.
