Invest
Household debt now ‘at record high’
The governor of the Reserve Bank has flagged serious concerns that Australian households are now carrying much more debt than before, pointing to soaring property prices as a major catalyst.
Household debt now ‘at record high’
The governor of the Reserve Bank has flagged serious concerns that Australian households are now carrying much more debt than before, pointing to soaring property prices as a major catalyst.
Speaking at the Australia-Canada Leadership Forum, RBA governor Philip Lowe said the interaction between consumption, saving and borrowing for housing is a “significant issue” that the bank is “watching carefully”.
“It is one of the key uncertainties around our central scenario for the Australian economy. We are still learning how households respond to higher debt levels and lower nominal income growth,” Mr Lowe said.
He said an increase in housing prices has gone “hand in hand” with an increase in household indebtedness.
“The ratio of household debt to income is at a record high,” Mr Lowe said, noting that the low level of interest rates means debt-servicing burdens are not that high at the moment.
He said the Australian housing sector is coping “reasonably well” with the high levels of debt. However, there are signs debt is affecting household spending.
“In aggregate, households are carrying more debt than they have before and, at the same time, they are experiencing slower growth in their nominal incomes than they have for some decades. For many, this is a sobering combination.”
Mr Lowe said the RBA’s latest forecasts were prepared on the assumption that growth in consumption is unlikely to surpass growth in household income in the next couple of years, differing from recent years where the rate of saving had trended down slowly.
Inflation targets are ‘not rigid straightjackets’
Mr Lowe said Australia has experienced low rates of inflation for a few years now, underpinned by a few underlying factors.
Wage growth has been subdued due to the “ongoing slack” in the labour market. Downward pressure on retail prices has also intensified competition, which has affected food prices, with new entrants and overseas retailers in particular putting downward pressure on the prices of a range of goods.
“We are both expecting inflation to increase, but only gradually so. In our case, we expect the disinflationary effects of the earlier decline in commodity prices and the competitive pressures in retailing to wane,” Mr Lowe said.
“Some pick-up in wages growth is also expected, although wage increases are likely to remain below average for some time yet. Our liaison with businesses does not suggest that a pick-up in wage growth is imminent, but nor does it suggest that a further slowing is in prospect.”
In light of this, Mr Lowe emphasised that flexible inflation targeting with a medium-term focus continues to be the right monetary policy framework for Australia.
“Inflation targets are flexible, not rigid straightjackets. In our case, the emphasis is very much on medium-term outcomes, rather than the outcome over any particular period,” he concluded.
Property
Aussies swap housemates for home ownership
The number of younger Australians looking to enter the property market in the next five years has doubled, as COVID-19 restrictions sees home ownership goals increase, according to research released ...Read more
Property
Falling loan deferrals prove market recovery: REIA
The reduction in loan deferral defies doom and gloom forecasts in the property market, the Real Estate Industry of Australia has said. ...Read more
Property
Why are expats returning to property market?
Expats are returning to Australia in droves, eager to put their money into safe investments. ...Read more
Property
Stamp duty to be phased out under new proposal
The NSW government has stated that it could phase out inefficient taxes such as stamp duty as it looks to recover from the COVID-19 pandemic. ...Read more
Property
Melbourne rents continue to decline
While most capital cities recorded increases in asking rents, Melbourne continued to see declines in both houses and units, according to latest data from SQM Research. ...Read more
Property
Why investors should focus on the next 1-5 years
Investors are being urged to look beyond their own backyards into opportunities over the next one to five years. ...Read more
Property
Distressed sales fall to pre-pandemic levels
Urgent property sales have dropped back to pre-pandemic levels in most cities – proof of Australia’s continuous recovery from the effects of the COVID-19 outbreak. ...Read more
Property
Top tips for managing your own property portfolio
Managing investment properties can feel very much like rolling a dice, you can never be quite sure what you’re going to encounter and, in most cases, you possess minimal control over what happens ne...Read more
Property
Aussies swap housemates for home ownership
The number of younger Australians looking to enter the property market in the next five years has doubled, as COVID-19 restrictions sees home ownership goals increase, according to research released ...Read more
Property
Falling loan deferrals prove market recovery: REIA
The reduction in loan deferral defies doom and gloom forecasts in the property market, the Real Estate Industry of Australia has said. ...Read more
Property
Why are expats returning to property market?
Expats are returning to Australia in droves, eager to put their money into safe investments. ...Read more
Property
Stamp duty to be phased out under new proposal
The NSW government has stated that it could phase out inefficient taxes such as stamp duty as it looks to recover from the COVID-19 pandemic. ...Read more
Property
Melbourne rents continue to decline
While most capital cities recorded increases in asking rents, Melbourne continued to see declines in both houses and units, according to latest data from SQM Research. ...Read more
Property
Why investors should focus on the next 1-5 years
Investors are being urged to look beyond their own backyards into opportunities over the next one to five years. ...Read more
Property
Distressed sales fall to pre-pandemic levels
Urgent property sales have dropped back to pre-pandemic levels in most cities – proof of Australia’s continuous recovery from the effects of the COVID-19 outbreak. ...Read more
Property
Top tips for managing your own property portfolio
Managing investment properties can feel very much like rolling a dice, you can never be quite sure what you’re going to encounter and, in most cases, you possess minimal control over what happens ne...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
