Is Australian household debt actually falling?

This week’s shocker financial result from Westpac has led to financial commentator, Peter Switzer, declaring that Australia’s record household debt load – currently 191% of disposable income – may actually be falling:

From Switzer Daily:

What if the biggest worry for the house price doomsday merchants was actually shrinking before our very eyes but we’re not actually seeing it right now?

And what if all those debt worriers out there were ignoring the fact that Australians might be saving their way to less potential financial problems because the statistical data hasn’t caught up with reality?..

This “borrowers might be cutting their debts” possibility came to me after fund manager Charlie Aitken (on my Switzer TV Investing programme) pointed out that Westpac revealed on Monday that the number of loans extinguished outnumbered new loans created!

That sounds unbelievable. And if it has happened with Westpac, it might be happening at other banks. This means people are taking this period of historically low interest rates to pay down and pay off their home loans!..

It’s so basic but it has been ignored. If individuals raise our indebtedness by borrowing, they can reduce it by paying back their loans. It’s obvious but few in the debt debate ever thought that might happen.

Economics is a strange beast. It can make monkeys out of experts and bush economists, who think an economy will conform to common-sense analysis!

You might want to hold your horses there, Peter. While “the number of loans extinguished outnumbered new loans created”, Westpac’s results still showed that mortgage growth remained positive (albeit weak):

The more pertinent data is the credit aggregates provided by the RBA. The latest available data for September showed that aggregate mortgage credit growth remained at 3.1%:

This remains above the 2.8% nominal growth in household disposable income:

Thus, it’s probably too early for Switzer to declare victory on the housing debt front.

Leith van Onselen


  1. “Economics is a strange beast. It can make monkeys out of experts and bush economists, who think an economy will conform to common-sense analysis!”

    Switzer is on another planet if he if believes that people will continue to take out more debt is “common-sense analysis”, although this is probably in line with the bizarre, yet often repeated belief from the RBA that lowering interest rates will lead to mortgage holders paying down a lower minimum and spend the difference on the economy.

    The only conclusion that can be drawn is that mainstream Australian economic thinking needs a thorough review.

  2. Given the huge rise in house prices over recent decades the size of the loans being extinguished are likely much smaller than those being created

  3. what Switzer may declare a victory would be a total defeat for a consumerist economy like ours

    the horror of deleveraging (falling credit) is the worst thing that can happen, especially with population growth in mind … there is less money in the system so deep recession is inevitable

    • Jumping jack flash

      This, for sure.

      The debt must grow enough to cover the interest on the last pile of debt, otherwise, as you rightly say, we will lose a crapton of money as interest repayments. Houses don’t generate money at all except through the larger pile of debt that is required to buy them the next time around. If that next pile of debt doesn’t cover the interest on the previous pile, then the effect is the interest on the previous pile has been stolen from something actually productive that creates real money for the economy.

      If debt isn’t expanding at least as fast as the (actual) interest rate – around 3 – 5%, we’re in deep trouble.
      RBA knows it. If debt growth is falling this is probably one of the reasons why they’re cutting like mad lately.
      The other is due to the US cutting their rates, probably due to the same reason.

  4. Georgia McKenna

    Honestly hard to believe this pitiful creature graduated high school. Despite his numerous talks with Steve Keen, this shaved ape still can’t grasp that it is deleveraging that causes the crash. Saving our way to “less potential financial problems” is the thermal detonator that will blow up the economy. The point that the “debt worriers” make is that if you climb to the 191st floor of the debt tower, you splat much harder when the tower starts developing cracks and collapses.

  5. Well that was silly, but perhaps a nice segue to ask how does the household DTI ratio data treat people who have just paid off all their debt. I would have thought they just drop off the dataset and not factored in.

  6. I am struggling to understand the RBA Mortgage growth chart above. If you look closely it shows credit growth went down between 2014 and 2017? But property prices went up like crazy during this time and peaked in late 2017. How does that happen? I thought credit grow was the primary driver for house prices?

  7. Home ownership has dropped from 80% to 60% in the last 20 years.

    Mortgages that were taken out between 1995 and 2005 are now being fully paid out.
    So we have a high amount of mortgages that are maturing and 20% less people who can afford a mortgage now.

    It’s pretty obvious why this differential has happened but of course Switzer has decided to misinterpret it.