Elevated inflation means central banks may have to keep policy rates higher in a way that stretches the capacity of borrowers to repay debt said the IMF in its latest Global Financial Stability Report.
And the Bank of England warned in their latest Financial Policy Summary that simply extending the term of mortgage loans is more about protecting banks than borrowers as risks build.
The International Monetary Fund (IMF) has updated its global growth forecasts, with the world expected to grow by 3% this year and 2.9% in 2024. The IMF tips that Australia’s real GDP growth will slow even faster, from just 1.8% this year to 1.2% in 2024.
Headwinds also confront real estate. Home mortgages, typically the largest category of household borrowing, now carry much higher interest rates than just a year ago, eroding savings and weighing on housing markets. Countries with predominantly floating rate mortgages have generally experienced larger home price declines as higher interest rates translate more quickly into mortgage payment difficulties. Australia is highly exposed as rates have moved more on a weighted basis than many other countries.
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According to the AFR, Australia’s red-hot jobs market is preventing the country’s most indebted borrowers from falling behind on their home loan, as internal Reserve Bank research reveals nearly one in five borrowers may be in mortgage stress.
While unemployment nationally was 3.7 per cent in August, unemployment among homeowners was likely “almost non-existent”.
But markets ascribe a three-in-five chance the RBA board will deliver one more rate rise by the end of the year, amid concerns about persistently high inflation in the services sector and a stubbornly strong jobs market.
Strong employment growth and nominal wage increases have insulated borrowers from some of the financial pain caused by high interest rates. About 18 per cent of loans across the country have a high repayment burden, defined as spending more than 30 per cent of household income on paying down a mortgage, according to internal RBA research released under Freedom of Information laws.
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Despite all the hopium from the property lobbyists, the truth is more households are running out of runway with regards to their finances.
It has shown up in my latest surveys, with more than half of mortgage holders now struggling with cash flow, and 70% percent of renters in the same boat.
Next Tuesday on my live show I will be walking through the detail behind these numbers. But the pressure is also showing up in other statistics. For example, the Australian Bureau of Statistics last week revealed that value of household deposit accounts decreased by $6 billion in the June quarter, with it being the first decline in 16 years.
“This was the first fall in deposit balances since the Global Financial Crisis and indicates that the household sector was tapping into cash reserves amid rising cost pressures”, the ABS said.
The decline indicates that households are ‘running’ down savings built up during the pandemic to pay for bills and loans as a result of the Reserve Bank of Australia’s (RBA) aggressive interest rate hikes to fight inflation and the overleverage into property driven by weak lending standards and high prices. Something has to give.
Meanwhile, figures released by the RBA on Friday indicate a growing number of people are using their credit cards to cover the cost of increased bills, with the stock of personal credit having risen by 1.6% in the five months to August.
It seems to me the real pressures are now painfully obvious, and some are truly running out of runway.
But note, the RBA’s forward guidance on monetary policy was unchanged, stating that “some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”
So, buckle up people, turbulence ahead.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
Digital Finance Analytics (DFA) Blog
Crash Alert: Households Are Running Out Of Runway!
Despite all the hopium from the property lobbyists, the truth is more households are running out of runway with regards to their finances.
It has shown up in my latest surveys, with more than half of mortgage holders now struggling with cash flow, and 70% percent of renters in the same boat.
Next Tuesday on my live show I will be walking through the detail behind these numbers. But the pressure is also showing up in other statistics. For example, the Australian Bureau of Statistics last week revealed that value of household deposit accounts decreased by $6 billion in the June quarter, with it being the first decline in 16 years.
“This was the first fall in deposit balances since the Global Financial Crisis and indicates that the household sector was tapping into cash reserves amid rising cost pressures”, the ABS said.
The decline indicates that households are ‘running’ down savings built up during the pandemic to pay for bills and loans as a result of the Reserve Bank of Australia’s (RBA) aggressive interest rate hikes to fight inflation and the overleverage into property driven by weak lending standards and high prices. Something has to give.
Meanwhile, figures released by the RBA on Friday indicate a growing number of people are using their credit cards to cover the cost of increased bills, with the stock of personal credit having risen by 1.6% in the five months to August.
It seems to me the real pressures are now painfully obvious, and some are truly running out of runway.
But note, the RBA’s forward guidance on monetary policy was unchanged, stating that “some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”
I caught up with Steve again following the RBA no change announcement on Tuesday, and we discussed the implications, in the light of new research from Canstar about the state of play of household finances.
Steve Mickenbecker is in Canstar’s Group Executive Team, bringing more than 30 years of experience in the Australian financial services industry. As a financial commentator for Canstar, Steve enjoys sharing his expertise across topics such as home loans, superannuation, insurance, mortgages, banking, credit cards, investment, budgeting, money management and more.
This is an edit of my latest live show, as I walk through our latest financial stress analysis, to end August. Which post codes are most impacted, and what are the potential outlook for prices and defaults?
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
DFA Live Q&A HD Replay: Latest Household Financial Stress And Analysis
This is an edit of my latest live show, as I walk through our latest financial stress analysis, to end August. Which post codes are most impacted, and what are the potential outlook for prices and defaults?
Go to the Walk The World Universe at https://walktheworld.com.au/
OK, so we know many households are under severe pressure, thanks to falling real incomes, rising inflation and of course interest rate payments. I covered this yesterday in the context of the latest GDP numbers, which on a GDP per capita basis were pretty frightful.
We have seen a record rise in cost-of-living for employee households, driven by soaring mortgage payments and rents, according to the ABS. Employee households’ living expenses increased by 9.6% in the year to June, which is significantly higher than the CPI inflation rate of 6%.
Since they are the ones who are carrying the majority of the mortgage debt, it is obvious that working Australians have taken the brunt of the RBA’s fight on inflation.
But is does beg the question, what levers do households have to try to regain some balance in their finances?
Well, of course there is the obvious one, make sure you have the lower rate on your mortgage and best rates on your savings – as I discussed a couple of days back. Many potentially can save by getting better rates, and we are talking potentially of thousands of dollars!
And make sure you know where you cash flow is going, so you can prioritise effectively, do you really need all those streaming services, and big mobile plans, for example.
The other lever though is just work harder, for more hours. And the recent ABS data showed the hours worked growing fast. But data released today from the ABS showed the number of people working multiple jobs and the percentage of employed people having more than one job reached record highs in the June quarter of 2023.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
OK, so we know many households are under severe pressure, thanks to falling real incomes, rising inflation and of course interest rate payments. I covered this yesterday in the context of the latest GDP numbers, which on a GDP per capita basis were pretty frightful.
We have seen a record rise in cost-of-living for employee households, driven by soaring mortgage payments and rents, according to the ABS. Employee households’ living expenses increased by 9.6% in the year to June, which is significantly higher than the CPI inflation rate of 6%.
Since they are the ones who are carrying the majority of the mortgage debt, it is obvious that working Australians have taken the brunt of the RBA’s fight on inflation.
But is does beg the question, what levers do households have to try to regain some balance in their finances?
Well, of course there is the obvious one, make sure you have the lower rate on your mortgage and best rates on your savings – as I discussed a couple of days back. Many potentially can save by getting better rates, and we are talking potentially of thousands of dollars!
And make sure you know where you cash flow is going, so you can prioritise effectively, do you really need all those streaming services, and big mobile plans, for example.
The other lever though is just work harder, for more hours. And the recent ABS data showed the hours worked growing fast. But data released today from the ABS showed the number of people working multiple jobs and the percentage of employed people having more than one job reached record highs in the June quarter of 2023.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
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