Latest data from the Melbourne Institute show the number of households that are debt free has fallen to 9 year lows with only 36.2 percent of households holding no debt in the September quarter, a record for the survey which began in 2001.
Recent ABS data shows Household debt has reached new heights while household net savings ratios are falling, ringing alarm bells that households are once again living beyond their means.
Helen Kevans, a senior economist at JP Morgan said households were re leveraging in a bid to keep up with ever rising house prices, “During the crisis there was little evidence that households actually deleveraged. Because we’ve taken on so much debt over the last few years then households are becoming much more sensitive to changes in interest rates”
With the economy at risk of overheating, many economists are predicting the RBA will raise interest rates by 125 basis points over the next 15 months.
Meanwhile, debt collection agency Dun and Bradstreet has said the latest average value of referred debts have gone past the $1,000 mark to its highest level before the GFC began, signalling a wave of personal bankruptcies are coming. “This type of negative credit event is traditionally the first sign an individual is facing financial trouble and it often leads to a bigger debt spiral” said Christine Christian, CEO of Dun and Bradstreet. “Therefore, it’s expected that more extensive financial difficulties, such as bankruptcies, could result later this year and into 2011”.
Defaults are also rising in the commercial sector, with debt collector Prushka noting a significant increase in defaults on commercial leases in the last 6 months. Soft retail conditions has caused significant pressure on retail tenants and factories.
» House prices forcing more people closer to the edge – The Sydney Morning Herald, 24th September 2010.
» Consumer debt hits record levels – The Sydney Morning Herald, 22nd September 2010.
Are we really surprised at the drop in personal/household savings when you consider how artificially low interest rates are on savings, when compared to REAL inflation in the REAL economy?
Why save in cash (returning next to nothing) when stock markets and housing markets have performed like they have recently?
Only when we see the public at large loose faith in housing/stocks and consumption will we see savings rates to be proud of.