Household financial confidence head for Hades

Via Martin North:

We continue to release the data from our household surveys to end November 2019. Today we look at our Household Financial Confidence Index, which examines how households are feeling about their financial status, relative to a year ago.

The index dropped again to 83.5, which is a new low in the series, and well below the previous 87.69 back in 2015. This level of concern suggests households will be keeping their wallets firmly in their pockets, so expect more retail weakness and household consumption easing lower ahead. The one “bright” spot was that more households are now believing their net worth is higher, thanks to the perceived recovery in home prices, and recent stock market highs, though offset by lower returns on deposits, flat incomes in real terms and rising costs. Recent rate cuts and tax refunds do not seem to have touched the sides!

The declines in confidence are broad based, with those mortgage free still below neutral, while those with a mortgage still more negative, and those in the rental sector (without property) even more down than that.

The news about rising home prices as impacted property investors, despite the continued weakness in rental income, thus we see a rise from very low levels for this cohort, from 77.01 to 78.45 in the month. On the other hand, property active owner occupied households were a little less positive, moving from 97.1 to 97.05. Property inactive households also drifted lower.

Across the states there was a significant decline in NSW, from 88.4 to 86.2, and this is connected with rising household budget pressures, and large mortgages in Sydney, plus the fires and drought across the state. VIC fell a little too, while there was a small rise in WA.

Across the age bands, those aged 20-30 reported the largest fall, thanks to pressure on incomes and rising costs. A number of new first time buyers who bought in recent months reside here. On the other hand, older cohorts are a little more positive this month, thanks to recent stock market rises, and some better home price news. We note, for example the headline of 6% plus rises in prices across Sydney have been interpreted by households in ALL post codes as appropriate to them – which shows the impact of a tricky headline, remembering that price rises are much higher in the more affluent upmarket postcodes.

Turning to the moving parts within the index, job security is under pressure, thanks to underemployment, weakness in retail and construction, and the upcoming holidays. 7.8% felt more secure than a year ago, down from 8.23% last month. 38.65% said they were less secure compared with 38.12% last month.

Incomes remain under pressure, with just 4.3% saying in real terms their incomes were higher than a year back, down from 5.3% last month. Pressure on household budgets is a pincer movement, as incomes are compressed (and returns from some investments and deposits fall). But costs of living are rising. In fact 94.2% reported higher costs than a year back, thanks to higher prices for fuel, electricity, school fees, childcare, and every needs. Only 1.3% said their costs of living had fallen.

Debt remains a major issue for many households, despite the rate cuts. Some households are paying down their mortgage faster than required, and are using the lower rates, and tax refunds for this. In an era of uncertainty, this is not a surprise. We also see a rise of households under pressure turning to payment options like AfterPay to support their purchases. Just 2% of households were more comfortable with their debt levels than a year ago, while 48% were less comfortable.

Some households have been building their savings (using lower mortgage rates and tax refunds) to build resilience for later. However, lower interest rates on deposits are creating its own pressures, while those with stocks and shares are seeing some dividend pressures too. Around 20% of households have insufficient funds to cover a month without work. Just 0.42% of households were more comfortable than a year ago, 49% were less comfortable and 45% about the same.

Finally, net worth – assets less liabilities, reacted to the higher reported home prices so that 27% say their net worth was better than a year ago up from 24% last month, while 43% were lower, and 24.65% about the same. Net worth was also boosted by high stock market prices and exchange rate movements.

So in conclusion, the household sector remains under pressure, and as a result financial confidence is bruised beyond immediate repair, that is until such time as wages growth really starts to accelerate in real terms. In addition the broader discussions about lower cash rates and quantitative easing are also helping to degrade confidence. The only bright spot, real or illusory, is the recovery in home prices (which are of course not uniform across the main centres and post codes). On this front, households are hoping for the best. We will see.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. ‘Just 2% of households were more comfortable with their debt levels than a year ago, while 48% were less comfortable.’
    That’s big and its poison for retail and discretionary spending.

    • It’s scary, I recently walked up the retail street in my suburb and over half the retailers have closed down or are in the middle of a closing down fire sale. A few boutique retailers are doing OK but aside from that it’s just cafes and gyms, and despite all the development in the area cafes have been totally static in their number for ~5 years now. And two of the four gyms closed.

    • I confess, I’m confused by the signals. Must be the Boomers climbing into more of what made the rich to begin with 😉

  2. Jumping jack flash

    “..until such time as wages growth really starts to accelerate in real terms.”

    All other things being equal and there’s no government involvement – in so much as the government starts building some factories or some other means of skillfully and sustainably producing useful items to sell to the world, and actually get this place productive – if the deleveraging takes off and the debt growth continues to fall, then after about 30 years of no debt growth to speak of, and steady deleveraging until most of the colossal private debt mountain is repaid, things will begin to improve.

    Keeping in mind that throughout this deleveraging period, costs of living will continue to be gouged and wages will be generally stagnant, if not falling, as more people show up looking for their slice of Australian pie.

    So whatever remains alive after that period is over will be surely set to flourish – like all those success stories that occurred after the many Great Depressions before this one we’re currently in.