How much more debt can Aussie households eat?

The Reserve Bank of Australia (RBA) yesterday released its household debt data for the June quarter, which revealed that the ratio of household debt-t0-disposable income retraced to 185.0%, whereas mortgage-debt-to-disposable income retraced slightly to 141.2%:

As you can see, both are a fraction below record highs.

Separate data from the Bank for International Settlements (above) shows that Australia still has the second highest household debt load in the world (behind Switzerland) and easily the highest in the developed English-speaking world.

However, due to the cratering of mortgage rates to record lows (see above chart), the ratio of household and mortgage interest payments to income have fallen sharply, now tracking around early-2000s levels:

But when principal repayments are also taken into account, separate data from the BIS shows that debt repayments remain far above early-2000s levels:

The difference is due to the sharp appreciation in dwelling values over this period, such that higher principal repayments have partially offset the massive reduction in mortgage rates:

With Treasurer Josh Frydenberg announcing the gutting of responsible lending laws alongside the RBA’s monetising of mortgage debt (in a bid to lower fixed mortgage rates towards 1%), the plan is to get Aussie households binging on even more mortgage debt to juice property prices.

How much more debt Aussie can realistically take on remains the big question.

Why settle for the household debt silver medal when gold is within grasp [/sarc]?

Unconventional Economist
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  1. Australia’s ‘Mr. Creosote debt economy’ always has room for one more bite. But perhaps we best eat our children and get it over with?

    • Perhaps they will eat us first?
      How many of us are now supporting them with funds ( still at home at 30; the deposit on that first/second or investment property etc) that our parents neither had the capacity to support us with nor contemplated that such was necessary?

    • Clive. Sure people voted for it. But most people know JS about economics/politics etc. Is not the real problem the corrupt manipulative media? They do not call to account all the main parties disgraceful sell out. Hence there is no real pressure for them to adjust their policies. Thus they are all the same and we are left with no one to vote for and truly represent us.

      Your average citizen thinks the ABC is objective and neutral.

      MB does a great job but the mainstream public does not read it.

  2. The thieving crooked government politicians and the thieving crooked banks all know that people have no options except to go into more debt. If they want/need a car and place to live. What is likely is the pace of shrinkification of the size of houses/places to live will accelerate. I have seen it in so many places in Perth now. So called detached new build dwellings 3 to a mediam sized block with 3 bedrooms the size of closets and the main bedroom only just big enough for a double bed and nothing else. Asking and getting 500K+. Load yourself up with 50 year mortgages to live in a dog box. No chance to raise a family. But dont worry landlords can squeeze at least 20 to a room once the borders open up again.

    • happy valleyMEMBER

      +1 Yep – Strayans have an insatiable appetite for debt and our gold standard morally bankrupt banks are now authorised to, and will indeed be castigated by Josh Rainbowberg if they don’t, return to lending totally irresponsible lending.

    • I could never work out why people choose to live in overcrowded, overpriced, and in my opinion overrated cities.

      Might be time to leave.

        • Ukraine fnMEMBER

          What’s the use of having a well paying job when you have to travel 1-2 hours each way a day to get to it , pay tolls or carparking and be subjected to all manner of ticket clipping for the privilege of living in an increasingly over crowded amenity and then after living expenses give the rest of the money to the FIRE sector in all of it’s incarnations .
          City living , it’s called a rat race for a reason.

          • Arthur Schopenhauer

            Agree. Unless people work remotely, there are limited $$$ jobs outside of Australia’s 5 largest capitals. (Excluding mine sites.)

            And asset appreciation, Australia’s primary vehicle to build wealth, is highest in the SE corner.

            What to do? 🤷‍♂️

          • GunnamattaMEMBER

            I can tell you guys I came back to Australia from offshore (10 years away) in 2012.  At that point I would have been a potential candidate for some high paying gigs in Syd/Mel.  At that point though it took me about a day to realise I couldn’t afford to live in either and that getting those higher paying gigs would involved 2-3 hours travel time each day.  Shortly after I had a mate suggest to me that another (low level nuff nuff) gig was available about 20 minutes drive from where I live in Geelong – free parking, casual dress, and hours to suit having kids.

            OK so I am not a mover and shaker and often do get bossed around by punting types of dubious intellectual value.  But it does mean I am free to palaver on with people at MB, do the occasional MB podcast, do a load of editing/writing work for people who need my skills (mainly offshore – they send it to me from Europe and I do it and have it back to them in their morning)  while at the same time getting my kids to soccer and ballet etc.  It isnt perfect but can work I reckon.

          • Arthur Schopenhauer

            @gunna I’d do the same in a heartbeat, if my wife didn’t have an exceedingly specialized job based on Melbourne. Happy wife, happy life!

          • billygoatMEMBER

            @Ukraine fun…and if you reside in demonised St Kilda cos weekend walkers and beach goers you have to navigate through 15 packs of 6 police officers walking the beat ([email protected]) policing mask removal & verbal
            Dissent from Dans narrative:)

        • Family, social circle, good schools, medical facilities, cultural pursuits, a variety of food/restaurants and other amenities.

  3. When comparing historical mortgage debit data do they allow for the longer repayment duration. My first mortgage was over 15 years circa 1981

    • They don’t. I had raised this issue when Chris Joye was arguing a while back that servicing the debt was still manageable by historic standards. This issue of course is that not only are people taking out longer time mortgages (and taking longer to pay them down) they are also taking out those mortgages later in life. As a result you see that the proportion of people that still have a mortgage later in life is growing.

  4. pfh007.comMEMBER

    Don’t get too excited about debt aggregates and averages.

    The RBA don’t care and neither do all those folk eagerly demanding that the RBA:

    1. Buy loads of assets owned by the wealthy for top dollar

    2. Cut interest rates for debt products for those considered by banks to be credit worthy to buy up the assets of poor people.

    What matters is whether the rich and wealthy in the top 25-30% of households can take on more credit as they acquire as many assets as possible.

    No one cares what the little folk do or whether asset prices are out of reach or whether they are forced to sell.

    As long as the rich folks and the central banks, they currently control, are able to concentrate wealth into fewer and fewer hands.

    That right wingers and conservatives and finance/banking shills clap and applaud is not surprising …….WHY anyone else does is the real mystery.

    Stockholm Syndrome is alive and well.

    • Totes BeWokeMEMBER

      “WHY anyone else does is the real mystery”

      Because the party that used to be for the bottom 70 to 75% is now infiltrated with elites and is now exactly the same as the other party. That’s what’s changed (minus a few micro policies to keep tricking votes out of the working class).

      Change is not possible until the plebs FINALLY work that out, and make Labor change, or have them replaced

      • Today’s Labor Party = Champagne Socialists.

        “NOW”, They’re all THE SAME.

        You get a choice (VOTE). But of WHAT?

        They don’t ASK what Joe Public NEEDS,

        They TELL him what he’s going to GET.

        And that’s a CHOICE between DICTATOR RED

        or DICTATOR BLUE

        (and they’re both THE SAME).

      • pfh007.comMEMBER

        Yep, the ALP is mostly run by careerists / useful idiots who qualify or aspire to qualify as a member of the top 25-30%.

        Which is why they support Josh’s response to the pandemic.

        The sad part is that generation from the mid 1970s who were programmed to accept a central bank supporting the business model of private banks as the natural order of the universe.

        They are constantly puzzled that a diet built on junk food turns the economy into a bloated terminal wreck.

        What do they prescribe? cheaper junk food in greater quantities!

      • Well, that’s happening anyway, Totes. What we are seeing is a ‘barbell effect’ where those doing it tough are demanding more handouts (more socialism … BLM, a Marxist movement, is simply an articulation of this), while the Gubmint continues its inflationary policies to prop everything up, sending stocks and financial assets to the moon, in the process making the likes of Jeff Bezos, the major shareholder in a mildly profitable company, the richest man in the world.

        The real losers are the middle/working classes who are going backwards at a fair clip.

        • Arthur Schopenhauer

          Even in Medicine, there is now a huge divide between GPs and Specialists. And even with specialists, a huge income divide between each college.

          • I’m not surprised at all. Btw what does the average GP earn these days? In day, a bulk billing practice?

        • What we are seeing is a ‘barbell effect’ where those doing it tough are demanding more handouts (more socialism … BLM, a Marxist movement, is simply an articulation of this), […]

          This is… not even wrong. But it does demonstrate why it’s fundamentally impossible to have a sensible conversation.

    • We need more migrants or they will eat our children
      SOS to Scomo get me my graphite or things won’t run smoothly

    • Arthur Schopenhauer

      The current budget will move the winners to the top 10-15% of the population. We’re on a trajectory to become Brazil, with the top 2% reaping any national wealth.

      • pfh007.comMEMBER

        Yep, the percentage at the top permitted to share in the wealth concentration program is reduced as the systems of control are improved and the risk of rebellion recedes.

    • We need a new clause in our Constitution; ‘Government must ensure that wealth inequality cannot exceed a Gini Coefficient of 0.25. It should be called the’fair go’ amendment. It’s a good buffer against the tyranny of the ruling class.

      • You’ve seen the way the CPI is manipulated so the Gubmint can declare ‘low inflation’.

        Everyone knows how this works – twist and torture the inputs and voila! – your model produces the right result.

    • Top 25-30% is a very low bar already

      Net wealth of the top 20% is only 3.2million apparently
      That doesn’t even buy a terrace in eastern suburbs

      It’s not really presented very clearly but I assume this is the average of the top 20%, so many (most) in the top 20% will have substantially less than 3.2

      In USA you only need 500k USD net to be in the top 10%

      That’s not even the median house price in Sydney

      I think we already really talking about the top 1-2%

      • pfh007.comMEMBER

        Yes – I tend to agree and if not right now we are rapidly accelerating in that direction. There are still quite a few who were modest income earners until their retirements in the 1990s – early 2000s who have are now asset rich without having done anything more than stay in their family home. As their assets are sold off as they die they will be bought by the top 10% or even more likely corporations empowered with lines of super cheap credit supplied by the bank controlled central banks.

        The next generation will simply be tenants of the super rich and large corporations who have applied their “credit worthiness” and access to low cost money creation to taking control of all key assets.

        The thing that annoys me is are the goof balls who are applauding Central Banks deploying their balance sheets to buy rich people assets and to encourage private banks to create money for rich people / rich corporations (to buy assets) and are trying to justify their support by claiming the process will push down the exchange rate (as if a low exchange rate means we are winning).

        • The smaller the wealthy cohort, the more extreme the measures need to be to drag the money from them and into the hands of the top 1 or 2 percent. Once you’ve decimated the lower 80%, you have to hunt larger game…

  5. Display NameMEMBER

    Inner west anecdata;

    – Terrace next door up the hill (rental) empty and on the market for a month for so.
    – Terrace next door down the hill is on the market, had scheduled auction for last weekend. No auction now mentioned online. Has an explicit price 1.62M. Tiny house in a grotty street, still in need of work.
    – In the block of units across the street, at least two have been vacant for a while now (weeks). Have not seen that in 3 years.
    – And we are now up to 1200 rentals across petersham and stanmore on the market. Up a hundred on average from a month ago.

    • The rental market is perhaps the only honest market out there that actually reflects supply and demand.

      Townhouse prob sold.

  6. With wages going down and higher unemployment, I doubt we can claim gold. We did not take full advantage in 2016 and first half of 2017 when used toilet paper was accepted as pay slip and mega loans were the new black.

  7. Easy answer is to simply import more warm bodies to load up. And coincidentally the immigration spruik went up multiple notches last night, complete with maps showing where the migrants are settling (looked identical to Melbourne’s Covid cluster hotspots) and the token migrant family. True to form, our incredibly competent MSM couldn’t even get the puff piece right and had mum in a public playground in Pt Cook not even legally wearing her mask.


    We’re same as cattle in the corral-and the policy makers know it.

    The ONLY way forward for obtaining a dwelling to call your own is to sell your soul to the lender for the loan required to make it happen. There is no discussion on ‘value’ or ‘quality’ or ‘amortization’; it’s all so hideous now yet everyone participates- precisely as the blueprint demands which reinforces and endorses the cult behavior. As long as the mortgage payment fits into your cash flow, you too can be a player. Ignore the loan balance- it just doesn’t factor anymore.
    The carnies running the game have won and we obediently thank them for being allowed to amplify the massive distortion of Strayan dwelling costs.

  9. For me the underlying problem is not Capital but rather Labour.
    For the most part Aussie labour just has no real value, it’s worthless, the jobs are BS as is the aggregate sum of most of the “work” that happens in Australia. With this in mind, why would anyone that owns an asset of real enduring value (such as a house, especially one that is well located) part with that house for any amount of Aussie labour. Our currency is simply the tool we use to connect these two items. If our houses have enduring value but our labour is practically worthless, then the exchange rate (hours of labour worked per house) adjusts to balance the equation. The system adjusts the amount of Capital needed to make this trade happen and the cost of this Capital.
    But make no mistake about it, the underlying problem is that Aussie Labour has no value.

    • pfh007.comMEMBER

      If Australian labour really has no value what possible value would there be in acquiring Australian residential land?

      Accordingly, it is definitely a capital problem.

      A misallocation of capital towards an asset class that does little more than provide shelter to labour. Labour which you argue has no value.

      That is a misallocation on a massive scale.

      • I don’t believe I said that the Australian economy had zero value, but rather that Australian labour had close to zero value, the two statements are very different.
        Australia has resources, and the world wants these resources, so just like any other Petrostate we find ways to distribute a minor share of this wealth among the citizens and tell them to shutup and be happy. It’s these resources which prop-up our currency, we all know that our labour is worthless so we accept any stupid exchange rate (houses for hours) because that’s the only way to gain wealth.
        Think about a different Australia where an individual effectively sold their labour on the global market. What’s the global value of a BS report? what’s the global value of a barista service?
        But in today’s Australia we don’t have valuable skills to trade so we accept our part in this BS economy and part of this cost is acknowledged by accepting inequitable House prices.

        • pfh007.comMEMBER

          “..I don’t believe I said that the Australian economy had zero value..”

          I did not suggest that you did say that. I was responding to your assertion that Australian labour has no value.

          If Australian labour has little value it is hard to explain why anyone would be placing such high values on land that has no productive use other than housing folks whose labour has no value.

          It might be explicable if the government are delivering dividends to every Australian and the only way of capturing some of those dividends was by selling shelter to those Australians but I think it is safe to say that if someone wanted to capture dividends flowing from our mining industry buying shares in that industry is a much easier way of doing it.

          I am happy to concede that given the strength of the Australian dollar, Australian labour will struggle to compete with at least some of our trade rivals but that is not the same as having no value.

          I remain of the view that the best explanation of Australia’s absurd prices for shelter is an unproductive misallocation of capital resulting from a thoroughly broken public monetary system rather than the value of Australian labour.

          • It’s a Chicken and Egg thing.
            Did Capital misallocation come first or did we simply decide that we didn’t need to earn our way in the world by becoming the “Clever Country”
            It really doesn’t matter which came first because today we are trapped in this corner and the only path out is to become globally skilled country with highly valued labour. Hopefully the AUD can catch a cold (or maybe the WuFlu) and help change the direction that we are heading but the lowered exchange rate doesn’t help if we are incapable of sizing those jobs which pay enough to allow us to live at the standard we are used to.