Total household debt stood at $1.84 trillion at the end of 2013, equivalent to $79,000 for every person living in Australia at that time. This was higher than it had been at any time in the previous 25 years, even after making adjustments to remove the effect of general price inflation (thereby giving a ‘real’ comparison).
The rate of increase in real household debt per person has slowed since the onset of the Global Financial Crisis (GFC) in August 2007. After increasing at an average of 10% per year between mid 2001 and mid 2007, real household debt per person rose at the much slower average annual rate of 2% between mid 2007 and the end of 2013. This slowdown may, in part, reflect the tightening in mortgage lending standards after 2008.
REAL HOUSEHOLD DEBT PER PERSON
Rising household debt has been only partly matched by the increase in the value of household assets. Over the past 25 years, household debt has increased nearly twice as fast as the value of household assets. Expressed as a percentage of the value of household assets, household debt increased from just under 11% at the end of September 1988 to nearly 21% at the end of 2011, before easing a little to below 20% at the end of 2013.
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SIZE OF HOUSEHOLD DEBT COMPARED WITH ASSETS
Income is an important consideration when deciding on a household’s capacity to make loan repayments in full and on time. Household debt increased more rapidly than household income from early in 1993 until the middle of 2007. Since mid 2007 (and the GFC), household debt has tended to rise in line with household income. At the end of 2013, the amount that households owed was nearly 1.8 times the amount of disposable income households received during 2013.
SIZE OF HOUSEHOLD DEBT COMPARED WITH ANNUAL INCOME
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.