We have released our latest financial confidence index which is derived from our rolling 52,000 household surveys. The index moved a little higher since the election, reflecting some more positive vibes from property investors, at the margin, and from those holding property more generally.
It is all relative however, as the current read of 86.34 is up from April’s 85.9, but the overall measure is still in deeply negative territory.
Looking at the segments by wealth, there was a bounce in those with mortgages, and also those renting or living with family or friends – but again still in negative territory. Those with property, and no mortgage hardly reacted at all.
Analysis across our property segments shows a move up from property investors (now expecting no changes to capital gains and negative gearing), a slight improvement from owner occupied borrowers, and a kick up from those renting.
By states, the convergence of recent times continues, although NSW and VIC saw a slight improvement, while WA and QLD saw a deterioration (linked to higher default rates in these states).
Younger household scores fell again, but there was a bounce in those aged 40-50 and 50-60, directly linked to the slight change in property investment sentiment.
Within the moving parts, there was little movement in job security, with 36% still feeling less secure than a year ago. Public sector jobs look less secure now.
Savings remain under pressure, with lower rates on bank deposits, though higher returns from shares. The prospect of lower deposit rates took the “less comfortable” rating down 2.88% compared with the previous month.
Debt remains a concern, with 47% worried by the amount of credit they hold, while 49% are feeling about the same as a year ago, down 2.16% on the month before.
Income remains under pressure. Given the lack of real wages growth this should be of no surprise. 40% said they had seen no change in the past year, and 50.5% said, in real terms their income had fallen.
On the other hand, costs of living remain a challenge, with 91% saying costs have risen over the part year. Electricity, child care, health costs, rates, and food all registered, suggesting the CPI continues to understate the real experience of many households.
And finally, net wealth deteriorated for 46% of households compared with a year ago, thanks to falling property prices. 26% said there was no change and 24% higher ( down 1.63% on last month). Stock market performance helped to offset the property falls.
So the question becomes, will the slight tick-up in property related sentiment stick, or is the overall index set to fall further, as reality dawns – low income, rising costs, big mortgages, compressed returns on bank deposits, and weaker job prospects?
Put like that, the small falls in mortgage monthly repayments, and income uplifts for some may not be sufficient to support the index ahead. We will see.
We have released the April 2019 edition of our confidence index, based on our rolling 52,000 household survey. The index fell again, to an all time low.
All wealth segments declined (even those without a mortgage), but those leveraged up are really concerned now.
Property Investors continue to take a bath, thanks to lower capital values, falling rental returns, switching from interest only to principal and interest, and fears about negative gearing changes.
The selected states continue to converge.
Younger households are the most concerned. Older, less leveraged households are more positive relatively, but still below long term averages.
In the video we look at the various drivers to the index, but the conclusion is that more households are seeing their net worth declining. Much of this is thanks to property values continuing to fall.
Regretfully, I cannot see anything on the horizon to change this trajectory. So expect more falls ahead!
DFA has released the March 2019 Household Financial Confidence Index, which is based on our rolling 52,000 household surveys.
The index reached a new low this past month as the weight of issues on many household’s shoulders pile up. The index fell to 86.1, well below the 100 neutral setting.
This video discusses our findings.
But in essence, all household segments, using our wealth lens, now sit below neutral, with those households with mortgages continuing to track lower, together with those who own property but are mortgage free. In fact the only segment showing a rise is the renting cohort, who see their rents in some centres (especially Sydney) on the decline. We find more among the Free Affluent segment, which is more aligned to the incumbent government, questioning their economic management.
Across the age bands, younger households are more negative, and this highlights some of the inter-generational tensions which we suspect will be played up in the yet to be announced election campaign. In fact, households in the 50-60 year band are most confident (thanks to lower mortgages, bigger savings and controlled costs).
We also see the state indices have consolidated below the neutral setting, as the confidence from households in NSW and VIC are eroded. Much of this is connected with falling home prices.
Across our property segmentation, property investors remain the most concerned, with falling home prices, the switch from interest only lending, lower net rental yields and the risks from changes to negative gearing and capital gains all playing in. On the other hand renters are finding some less expensive rentals now, and greater supply. Owner Occupied households are more positive, but still below neutral. This may mark the end of the great property-owning bonanza, at least for now.
Looking across the moving parts of the index, more households are feeling insecure about their job prospects, thanks to pressure in the construction, retail and real estate sectors.
Savings are under pressure from first continued low bank deposit rates, and second, the need to raid savings to keep the household budget in balance. Share values did improve in the month, which offset some of the gloom.
Households are felling the pressure of the high debt (and as the IMF recently showed not just among affluent households). Just under half are now less comfortable with their debt than a year ago, a trend which started to rise in early 2017.
Incomes, in real terms, remain under pressure, with those in the public sector experiencing small rises, but many in the private still in negative territory. More than half say, in real terms, incomes have fallen over the past year.
Costs continue to rise, with power prices, healthcare, health insurance, and child care all registering. Plus we are seeing more fallout from the drought which is also impacting some food costs. Nearly 90% of households said their costs are higher than a year ago.
Finally, we put this all together in our assessment of net worth (assets minus loans etc). 45% of households say their net worth is lower, reflecting falls in the property sector, some lower share prices, and diminishing savings. Not a good look in the run up to an election!
There is little evidence of anything which will change the momentum. Rate cuts and handouts to households may provide some short-term relief, but the economic settings are not correct to reverse the trend. So expect more bad news ahead.
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.
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.
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 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.
