Tag: DFA FCI

Household Finances Are Shot

Following on from our mortgage stress report for December 2018, which we released yesterday, we complete our monthly data series with the release of the December Household Financial Confidence Index, our gauge of how households are feeling about their financial situation.

The overall index fell again in December to an all-time low of 87.3 (which is strange given the Government’s assertion the economy is in fine fettle!

The DFA index can be segmented a number of different ways, to home in on which households are most concerned about the state of their finances. A significant factor is whether households are property owning, and whether they are mortgaged. Households who hold property, but no mortgage are the most confident and above the 100 neutral setting, although confidence in this group is falling. Those with a mortgage are well below the neutral measure, and confidence for this group continues to fall. Those in the rental sector, or living with friends or family are less confident, though recent wage rises and falling rents have had a slightly positive impact this month.

Within the property holding segment, we can also separate property investors from owner occupied households. Significantly property investors have gone very negative now, thanks to falling property prices, rising mortgage costs and issues with mortgage refinancing. The threats to negative gearing are also in play. Concerns about rising mortgage rates are building (Bank of Queensland moved yesterday!). Owner occupied property holders are more positive, those with mortgages and those mortgage free are both within this segment. Property inactive households – those with no exposure to property – are slightly more confident than property investors.

We can also examine the data across the main states. When we do that we find a “bunching” of scores, as NSW and VIC come off their highs (the main centres in which property prices are falling).

South Australian households have remained more positive, while Victorian households have taken something of a dive -as prices are moving south at a faster clip. And we can also look at the age band data.

Here, younger households remain the least confident, and the general slide continues across the age bands, other than those aged 50-60 – who are less likely to hold mortgages, so more likely to reside in the “Free Affluent” segment.

We can then look at the data drivers for the index.

Job security shows a spike in those feeling less secure, up 3% – and workers in the construction and real estate sectors have become more concerned. There was a fall of 1.7% in those feeling more secure than a year ago, at 11%. 53% of households reported no change than a year ago, down 2%.

Savings are taking a beating, with more households tapping to savings to sustain their budgets, and also being hit by falls in interest rates on deposits and falls/volatility in the share markets. 2% only, are more comfortable than a year ago, 46% less comfortable, and 51% about the same.

Debt remains a major source of concern for many households. Whilst overall personal credit (other than for mortgages) is falling there are credit hot spots where households under pressure are putting more on credit cards, using staged repayment products like Afterpay, or even Payday loans. Many households are finding their large mortgages more difficult to handle (as reflected in our stress reports). Around 1.5% of households are feeling more comfortable than a year ago, 46% less comfortable and 51% about the same.

Household income remains under pressure, with many reporting no increase in real incomes in the past 5 years. Many households are working multiple jobs, and are still underemployed. In addition, the interest on deposits held with the banks have fallen significantly, as they trim their interest rates to protect their margins. 4% said their income in real terms had risen, 53% said it had fallen and 43% said there was no change.

Households reported continued rising living costs in December with and additional 1.5%, or a total of 86% saying costs, in real terms had risen. 5% said they had fallen and 8% said there was no change. As well as the usual suspects – higher electricity costs, health care, child care and some food costs, a number of households reported rises in land tax as a concern. Once again the official CPI seems disconnected from the true experiences of many households, costs continue to rise and fast!

Finally, we look at Net Worth – Assets less loans owning. We see a rise in those reporting a fall, directly associated with the fall in home prices, 34% said their net worth had dropped in the past year, 33% said it had improved, and 29% said it was about the same. So whilst for some the “wealth effect” is intact, one third are feeling the effects of a reduction in wealth on paper, and as a result they are more cautious on their planned spending. This is sufficient to slow consumption ahead, and may well impact GDP as a result.

In summary then, we continue to see the same forces in play, in that as home prices slide and costs rise, household finances are under pressure. But the effects are not uniform, those with mortgages, and younger are most impacted. But the recent stock market ructions and lower returns on deposits are also biting.

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 In The Gutter

The results from the DFA household surveys to the end of October 2018 are out today. The index measures households overall comfort level with their finances across a number of key dimensions. Recent home price trends, lower returns on deposits and share market gyrations have combined to take the index lower, despite strong employment trends. The wealth effect is now working in reverse, with a potential  impact on future consumption.

The index returned a result of 88.1, down from 88.4 last month. This continues the decline since late 2016, and is now approaching the lowest ratings from 2015.

The convergence across the states continue as home price falls in NSW and VIC take a toll, with the southern state showing a significant slide. WA and QLD appear to be tracking quite closely.

Across the age bands, younger households are under the most pressure (thanks to large mortgages, or renting) while those aged 50-60 years remain the most confident, thanks to lower net borrowing, and more savings and investments.  For those aged 40-50 recent falls in property prices swamp any benefit from stock market performance.

Those holding property for owner occupation remain the most positive, despite falls in paper values of their homes, but property investors are now registering significant concerns, thanks to flat or falling net income from rentals, falling capital values and concerns about the future of negative gearing and capital gains tax relief. More property investors signalled an intention to seek to sell property, as the switch from interest only to principal and interest loans continues. More than 41% of mortgage applications were rejected, compared with 5% last year, as more rigorous underwriting standards bare down.  In fact those renting are in many cases more confident than property investors, significant turn around. The great property investor decade in passing.

Turning to the moving parts within the index, there was a small fall in those feeling more insecure about their job prospects, down 0.71% to 26.99%. There was a rise of 1.53% in those feeling more secure to 12.68%, and as a result those saying there was no change dropped a little, down 1.91% to 57.14%. We continue to see the spread of more precarious employment, including gig economy jobs, zero hours contracts, and growth in low paid ancillary healthcare jobs. We also saw a significant fall in employment in the finance, construction and real estate sectors, as the property sector eases.

Savings have been hit by recent stock market ructions, plus lower deposit rates on call accounts. As a result, there was a 3.38% rise in those less comfortable with their savings, to 43.39%. 49.28% said there was no change.

On debt, 45.47% of households were more concerned about their debt holdings, up 3.48%, thanks to some higher interest rates, rejected loan applications, and falling property values eating into equity, so reducing loan to value ratios. That said, those seeing no change stood at 51.87%, so more than half of households do not see any significant change.

Looking at household cash flow, income growth remains anemic in real terms. Just 3.69% said they had real income growth in the past year, up 1.32%, partly thanks to recent wage awards. However, 53.71% said their incomes had fallen over the same period, up 4.01%, and 41.33% said there was no change. Those in the public sector (especially in Canberra) appear to be fairing the best.

On the costs side of the equation, recent oil price falls have yet to translate into the results, so households said that overwhelmingly their costs of living has risen in the past year – at 83.66%. 4.88% said their costs had fallen, up 1.50% and 11.33% said there was no change. We see find households discussing power bills, fuel, health care costs and child care expenses, but they also highlighted recent rises in some food staples and council charges.

So finally, we can look at net worth (assets minus debts).  Around 30% of households reported no change compared with a year ago, but 30.6% reported a net fall, up 5.27% and directly associated with the fall in property values and share values.  37.92% said their net worth was higher, down 1.89% from last month. So the fall in values is now hitting home, and as a result more households are experiencing a negative wealth effect.

This may well be deadly to household consumption (the engine of growth from the RBA’s perspective). This all goes to show that tracking employment growth as a leading indicator of the economy is not telling the whole story.

Slow wages growth, falling home prices and rising costs are combining to drag wealth and household confidence lower, and there is no end in sight. Another reason why we think the RBA will not be lifting the cash rate any time soon.

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 Wilts Again In September

In the final post relating to our latest household surveys this month, we turning to our household financial confidence index.


The latest read, to end September shows a further fall, and continues the trend which started to bite in 2017. The current score is 88.4, just a bit above the all-time low point of 87.69 which was back in 2015. Last month – August – it stood at 89.5.

Looking across our property segments, both property investors and owner occupiers were lower, reacting to the falls in home prices, and the difficulty of refinancing many are experiencing. Mortgage rate increases are also putting more pressure on many budgets. Despite this, those renting remain less confident, though investors have really turned sour now.

Across the states, we see a bunching of results, though Victoria appears to be heading south, while South Australian households are a little more positive than last month.

The falling levels of confidence are evident across many of the age bands, older households are still relatively more positively, largely thanks to historic capital growth in their property, and strong stock market performance in recent times. Younger households are more concerned and many are now seeing their property values fall, at least on paper.

Looking at the moving parts which drive our index,  those who felt more confident about their job security than 12 months ago fell 1.8% to 11%. 59% saw no change.

There was a fall in those confident with regards to their savings, with a fall of 1.7% in those feeling more comfortable than a year ago, and 50% feeling about the same. The falling savings rates that many have experienced is part of the story, but so is the fact that more are raiding savings to make ends meet. This of course is not a sustainable position.

There was a fall of 1.3% in those who are comfortable with the amount of debt they hold, and 42% are less comfortable than a year ago, reflecting recent mortgage rate increases, and problems with getting an appropriate refinance deal.

Overall income remains an issue for many, with 42% saying there had been no increase in the past year, and 50% saying there had been a decrease in real income. Many households are relying on multiple jobs to pay the bills, and some of these are zero hours and uncertain in terms of income. We still see high levels of under employment, suggesting that many households want more work than they can get.

The costs of living remain a significant issue with 84% saying their costs have risen in the past year. It is the normal story, higher electricity and fuel bills, rising medical costs and child care as well as school fees. The standard reported CPI measure does not appear to align with many households current experience.

Putting all this together, 39% say their net worth is higher now than a year ago, mainly thanks to the strong stock market, 28% say they see no change and 25% say their net worth has dropped. The most significant factor here is the fall in property values over the past 12 months.

We expect to see the index continuing to track lower ahead, because the elements which drive the outcomes are unlikely to change. Home prices will continue to move lower, the stock markets are off their highs, wages are hardly growing and costs of living are rising.  Household financial confidence is set to remain in the doldrums.

Finally, despite the attractor mortgage rates on offer from the banks continues, (in an attempt to keep mortgage volumes up), our research shows that many households cannot access them in the new tighter lending environment. 40% of applications are being rejected.

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 Still Under Pressure In July 2018

The latest edition of the DFA Household Financial Confidence Index to end July 2018 remains in below average territory, coming in at 89.6, compared with 89.7 last month.  We had expected a bounce this month, in fact the rate of decline did slow, thanks to small pay rises for some in the new financial year, and refinancing of some mortgage loans to the “special” rates on offer currently.  However, the index at this level is associated with households keeping their discretionary spending firmly under control. And the property grind is still impacting severely.

Looking at the results by our property segmentation, owner occupied households overall remain around the neutral reading, while property investor confidence continues to fall, into territory normally associated with those who are renting or living with family.  This signals significant risks in the property investment sector ahead.

 

Owner occupied property owners who have been able to refinance (lower LVR loans) have been able to shave their monthly repayments, while for some in rented accommodation they have found it easier to find a rental at a lower rent. Investment property holders reported continued concerns about servicing their loans, and of potentially higher interest rates ahead. Those on interest only loans were particularly concerned about their next reset review, given the tighter underwriting standards now in play. The peak of the resets however is well more than a year away.

The spread of scores across the states continues to bunch, as NSW and VIC households react to lower home prices.  WA continues to show little real recovery in household finance (despite the hype) although there was a small rise in Queensland, thanks to recent pay lifts for some.

Across the age bands, younger households remain the least confident, while those aged 50-60 were more bullish, thanks to recent stock market lifts, and access to lower rate refinance mortgages.  The inter-generational dynamic is in full force, with younger households not in the property market seemingly unable to access the market (despite the recent incentives in NSW and VIC) and those with a property, and mortgage wrestling with the repayments.

Looking in more detail at the index components, job security improved a little this month, with 12.5% feeling more secure, up 0.67%, 27% less secure, down 0.92% and those about the same at 58.8%, up 2%. However, we see many households in multiple part-time jobs, and around 20% of households are actively seeking more work/hours.

There was a small rise in those reporting an income improvement, thanks to changes which kicked in from July. 2.3% said their income has improved, up 1.5% from last month, while 43.7% stayed the same, and there was a drop of 2.2% of those reporting a fall in income, to 50.5%.

Households continue to see the costs of living rising, with 82.3% reporting higher costs, up 1%, 13% reporting no change, and 2.5% falling.  The usual suspects included power bills, child care costs, the price of fuel, plus health care costs and the latest rounds of council rate demands.  The reported CPI appears to continue to under report the real experience of many households. Many continue to dip into savings to pay the bills.

In terms of debts outstanding, there was a small fall in those reporting they were less comfortable, with 42% reporting compared with 44% last month. This is attributable to changes in interest rates, and refinancing, especially for owner occupied households with a lower Loan to Income ratio.  Many with large mortgages also have other debts, including credit cards and personal loans which also require servicing. Around 52% reported no change in their debt, up 3.5%.  Property Investors were more concerned overall.

Looking at savings, those with stocks and shares have enjoyed significant gains (at least on paper) and recent dividends, so tended to be more confident. Some were able to benefit from higher savings rates on selected term deposits, though rates attached to on-call accounts continue to languish as lenders manage their margins. Around a quarter of households have less than one months spending in savings, so many are facing a hand to month situation with regards to their finances. Many of these households are in the younger age bands and have no savings to protect them should their personal situations change.

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.

So finally, putting this all together, the proportion of households who reported their new worth was higher than a year ago continues to slide as property price falls continue to hit home, and as savings are raided to maintain lifestyle. 42% said their net worth had improved, down 3.75% from last month. 25.6% said their net worth had fallen, up 2.5% and 28% reported no real change.

We had expected to see a small bounce in the index this 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, the spate of attractor rates from the banks continues, in an attempt to keep mortgage volumes up. However, our research shows that many households cannot access them in the new tighter lending 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 index next month.

Household Financial Confidence Still Under Pressure In July 2018

We look at the latest results from our household financial confidence index to July 2018.

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Household Finance Confidence On The Blink (Again)

We discuss the June 2018 results from our household surveys.

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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.

 

Household Financial Security Tanks In May, As Property Falls Hit Home

The latest Digital Financial Analytics Household Financial Confidence Security Index for May 2018 is released today.  The index tests households attitudes to their finances, based on our 52,000 rolling household survey.

The index dropped to 90.2, down from 91.7 last month. This is below the neutral setting of 100.

Property-related sentiment is hitting hard, especially in New South Wales and Victoria where price falls are most evident.  In Western Australia and South Australia, the index hardly moved compared with last month, and in Queensland it slid just a tad.

Looking across our property segments, those not in  the property game, and renting or living continue to languish. But we also are tracking falls among property investors, reflecting difficulty in obtain finance, higher interest rates, and falling property prices, and now, also those who are owner occupiers. Both of these property owning segments slid again, mirroring falls in property prices, and the slowing auction clearance rates. That said, those owning property are still relatively more confident about their finances, compared with renters, so the property effect continues.

Across the age bands, those aged 40-50 were a little more confident, reflecting recent stock market progress, especially among those without mortgages (yes, some have paid down their loans completely), while levels of employment remain pretty good. But for younger households the budget pressure on them remains severe, especially those paying rent, or mortgages. Those entering the retirement phase, 60+ continue to wrestle with outstanding mortgages (many hold these loans into retirement now) and also lower returns from deposits.

We can examine the moving parts within the index, to get a sense of what is driving the results. First we look at job security. Something appears to be happening here, as the proportion feeling less secure is rising, up 1.7% compared with last month. There was also a fall by 2.4% of those reporting no change in sentiment compared with last month. Below the hood, it appears that more are involved in multiple part-time jobs, and becoming swept up in the gig economy. Zero-hours contracts appear to be on the rise in some industry sectors. So, while the number of jobs created may be north of one million as the Government often says, we question the quality of these jobs, and their security. Our index reveals another perspective.

This may also help to explain the fall in real income (after inflation) many households are experiencing. 54% of households said their incomes had fallen in the past year, and only a small fraction report a rise. 43% say there has been no change since June 2016. There are a number of drivers here, but the main one is simply no, or low pay rises, adjustments to overtime rates, and lower returns from bank deposits. Many older households rely on income from savings and this in under pressure with the current low interest rates, and banks trimming their deposit rates too boot.

On the other hand, the costs of living continue higher. Nearly 81% of households say their costs are higher than a year ago, up 2% on last month. The litany of rising categories includes electricity, fuel, health care costs, school fees and child care costs. But households are also reporting higher costs at the supermarket, and a tendency to eat in, rather than out, to keep costs under control. More also turning to credit cards, or pulling equity from their properties to keep the household afloat.

On the savings front, more are concerned about the amount they have for emergencies. Just 2% are more comfortable compared with last month, while 46% are less comfortable, up 1% on last month.  The interest rates offered on bank deposits continue to fall, and this is impacting many who rely on a regular savings generated income. Those who are in the stock market are a little more positive, but the recent crash in bank shares following the revelations from the Royal Commission, and other adverse events, translates to lower confidence. Its worth remembering that nearly half of dividends paid last year came from the financial sector.

Households continue to feel the  pressure from debt. 45% of households are less comfortable with the debt they owe, up 0.6% from last month. Around 49% remain the same as a year ago, and 3% are more comfortable.  The drivers relate to larger mortgages, and higher real mortgage rates (despite some refinancing to gain a lower rate); the inability to get mortgage funding due to tighter lending standards, and a rise in equity withdrawals and some areas of personal credit. While personal credit balances overall are falling, personal debt is concentrated in households with larger mortgages and here it is rising.  Payday lending is also on the rise. In addition, households are concerned about the prospect of higher interest rates ahead. Many are stuck in the debt machine.

Finally, and putting the data together, we look at net worth – defined as assets less loans outstanding.  47% of households say their net worth has improved over the past year, down 4% on last month, as property values slide and household debt rises. 22% reported their net worth was lower, up 2% compared with last month and 28% said there was no change in the past year.

So, the pressures on household finances are clearly visible in these results, and bearing in mind the expected continued fall in home prices, and the prospect of interest rate hike, plus flat incomes, we expect the trend to continue to weaken in the months ahead.

This is certainty a different read compared with the recent headlines of jobs and GDP growth, and it shows the disconnection between the top-line narrative, and the real experiences of households across the country.

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 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 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.