The real debt crisis

May 6, 2014 admin Australian Economy, Australian Housing 47

As Australians argue about the level of government debt and if we need a debt tax ahead of next Tuesday’s Federal Budget, the Australian Bureau of Statistics (ABS) has today released data showing where Australia’s real debt crisis is.

According to the ABS, Australian household debt at the end of 2013 now stands at $1.84 trillion dollars, or almost 180% of household disposable income. While the growth in household debt is slowing, it is still at the highest level than any time in the past 25 years.

With heated debate on Australian government debt at around 30 percent of GDP, Australian household debt now sits at 120 percent of GDP.

Earlier this year, Australia toppled Canada, snatching the accolade for having the largest housing bubble in the English speaking world.

» 4102.0 – Australian Social Trends, 2014 Trends in household debt – The Australian Bureau of Statistics, 6th May 2014.




47 Comments

  1. We are told we may need to work until we’re 70, yet if house prices were 20% lower we could retire a decade earlier than that. We are told we need to cut services, but fixing (or removing entirely) NG would increase government revenue hugely.

    This budget is one huge ideologically unsound con.

  4. This is the con revealed. Demonisation of public debt, the myth of ‘crowding out’ and the unfettered creation of privated debt as its so ‘rational’. The outcome is firstly, private affluence based on an illusion of wealth (the house as an ever appreciating ATM) and public squalor and secondly, a massive and perverse allocation of investment in unproductive assets (housing) at the expense of productive assets. The latter can’t indefinitely support the former. This is not going to end well.

  6. What data was released on 6 May by the ABS showing household debt at 180% of household disposable income at the end of 2013? RBA table B21 Column D clearly states the percentage at the end of 2013 to be 148.8% and that was published some time ago. That is a lower percentage than 8 years ago in June 2006. I don’t suppose you wish to post that fact on the basis that it doesn’t suit your doom and gloom.

  8. Hi, I guess you could say I’m a novice when it comes to a lot of the stuff that’s written here. I’m hoping someone can comment on an article I just read.

    The following article talks about the Australian Property Bubble:
    http://finance.ninemsn.com.au/article.aspx?id=8833973

    The following quote is the part I’m interested in:

    “For our property markets to crash – which is different from a slowdown or the normal cyclical correction – Yardney says you need one or more of four things to happen, none of which is on the horizon: a major depression, massive unemployment, exceedingly high interest rates and an excessive oversupply of properties.”

    I would basically be curious to receive some feedback on that and the article in general as at a first read it actually seems to make decent sense to me as I’ve been hearing about a property crash for a very very long time that just doesn’t seem to happen. What I’m wondering is how accurate or inaccurate would anyone say that assessment is and perhaps a bit of explanation why?

    I should state I’m on neither side of this argument. I’m just a young person whose trying to make the right decisions with my hard earned money and primarily avoid either buying at the top or missing out all together so trying to work out timing on anything I do. I like to take in both sides of arguments when doing so rather than just align.

    Thanks in advance for any response that can help me become a bit more informed.

  9. Do the people borrowing understand the risks?
    The housing market is too big to fail!
    The banks will rely on the government to bail them out. The government will have to take the superannuation money, to give to the banks (in the national interest)
    Talk about on a knife edge…

    How do you get your hard earned savings out of the system so you don’t get screwed by new confiscation of bank deposits.

    Also, real unemployment figures(not the massaged ABS stuff issued) will determine what happens to the growth in debt.

    Unemployment goes up, then houses will be sold for less than bought, so the debt levels may only be flat and the house prices may still fall.

    What a great time to be alive to witness all this!!!

  10. How come NG doesnt even get a mention in the media? The media has failed us, they were supposed to be for the people uncovering the truth and all you get is a giant PR machine run by the wealthy.

    With regards to the large personal debt, I would imagine a significant portion of this belongs to low-middle income earners who will be less resilient in covering their debts in the event of a crash. Young couples will children who were forced to buy $500k+ homes so they have a roof over their heads as opposed to an investment property. Its a shame, decent people are going to be the ones hurting from this.

  11. It is time to take a more personal and active role in telling our local politicians on what should be done not waiting for elections to come along and just vote for them. Don’t be afraid to tell politicians what you think of their performance on important issues and that you will be making notes and comments on their progress on Facebook, Twitter, YouTube etc. etc.SPREAD THE WORD-DONT BUY NOW!! AND DONT VOTE FOR THEM NOW!!

  12. @ Unsure what to do:

    The key words in that article are “Excessively high interest rates”

    What is excessively high? I know people who grew businesses through the 90’s with 30+% business overdrafts. Yet with interest at record lows, we are seeing businesses fail at record rates. (That’s a fact from ABS, not sure about it currently, but definitely in the last 2 years).

    So what’s the difference? Businesses thriving at 30% interest vs. businesses failing at 8% interest?

    Simple: It’s the debt load. The debt load that is out there is now massive: The largest ever seen in the history of the world. Australia rank’s number 1 as the most privately indebted nation on earth:

    So, while they can preach about how stable our economy is, how low unemployment is, and no signs of a global depression (really? ask the residents of greece, spain, japan, parts of china, parts of USA etc. etc) the one thing these main stream media guys ALWAYS miss is the debt load: It is the EXACT reason the ‘finance’ world was caught off guard by the GFC.

    Back to excessively high interest rates: I highly doubt we will get to 7% interest before this housing bubble burst’s: How far away that is, I don’t know: But I do know, the remaining businesses can’t cop many more hits: When the clowns do begin to raise rates, businesses will be raising their prices also: The reserve will read this as inflation (when really it’s not inflation, but prices rising: two very distinct causes and outcomes) and it will self energise, until we have a Lehman Bros. moment.

    @ Yoda

    Your comments about getting your wealth out of the system is the exact same thought process I’ve been working through: I’m going away for the weekend: but next weeks task is to take some real action: The plannings mostly done, just to execute. I’m not saying the boats sinking anytime soon, but I’m getting my life raft set.

  13. Matty’s right. ASIC publish Insolvency statistics here. 2011-2012 saw the highest level of insolvencies at 10,757, followed by 2012-13 at 10,746.

    In terms of interest rates, there is a Interest Payments o Dwellings that show households today are still paying more of their disposable income into housing, than in 1989 when interest rates were 17+%. It supports what Matty is saying about the huge debt load today. Interest rates probably only have to go up a percent or two and Australia will be stuffed – just too indebted.

  14. I have an ingenious plan. Why don’t we max out our credit cards, spend all the equity in our homes, buy a new car on credit and go on an expensive overseas holiday. So when the system collapses the banks cannot take our savings and we have all had great time. On second thoughts that’s what we have already done. How clever are we Australians eh!

  15. I’d like to see the Govt try to take my savings. They aren’t even in Australia. As far as they know I spent it all on hookers and beer.

    Meanwhile my mail forwarder in the US has let me set up a bank account and lets me trade and invest over there paying half as much tax.

    Its called economics.

    50% tax. Are you kidding me? I’m not paying tax for a carbon study group foundation, a save the whales department or a skate park inner city kid park wtf.

    So most of us pay 37% tax and 10% gst and then at least 5% in other random fees and taxes. What a crappy tax system and country. You cant get ahead. You cant make any money. You cant innovate or produce.

    Too many handouts and too much borrowing to pay for things we don’t need while having a super bloated government workforce

    This place is as bad as China and North Korea.

  16. ‘we need a debt tax.’

    We already have one. It’s called interest paid on money created out of nothing, and inflation. Which is actually tribute payed by a conquered people.

  17. Topside, Australia is at the low end of the tax to GDP ratio in the OECD. In fact according to this site we are 8th of the 30 OECD countries listed. While our tax rates might be high the various tax concession (including negative gearing) mean that the actual amount of tax that we pay is relatively low. If you want to be taxed less you could go and live in Somalia or Afghanistan.

    When you say “most of us pay 37% tax” that is only on income over 80k. In fact if you earn 80k you effectively pay less than 23.5% income tax including the Medicare levy. I would suggest that most people who frequent this site earn less than 80k p/a.

    Looking at the second graph in the website I linked above you will notice that while the US does have a lower tax to GDP ratio it does have only a slightly larger government expenditure to GDP than Australia. We should all be able to figure out how they are doing that (if you need a hint it is public debt).

    Having said that, high property prices are really another form of taxation that just gets payed to the property industry and bankers, not the government. The revenue doesn’t end up in more infrastructure and public services, just private pockets.

  18. Sorry my bad, they were 2007 figures. More up-to-date figures are here. We are in fact the 5th lowest.

  19. I really like Australia. It’s nor perfect by any means, but wild horses would’t drag me back to the UK (or anywhere else in Europe for that matter), and the Unites States has too many other problems that far outweigh property prices.

    The grass may be greener, but caveat emptor my friends.

  21. Fraud also has an effect on the bubble. More so when it goes unpunished and not in the news.

    prepper

  23. @ Unsure what to do – I’m in the same boat & can relate to your feelings on the housing issue.

    @ Matty – Thanks for helping explaining things you have helped me to understand it all a bit better.

    I’m glad someone is finally talking about debt. It always astounds me that more people aren’t at all shocked by the fact that we have one of the smallest populations with one of the highest debts.

    I agree the housing issue in Sydney is unjustifiably wrong! As far as I’m concerned I cannot wait for it to burst. Realistically I think it would take a collapse in China for it to occur here OR a world war three to commence. So although I want a bust in the property sector to take place, I just cannot see it ever happening in Sydney unfortunately 

    NG, is also an issue I can’t see the government changing. Purely because we cannot afford the baby boomers in their old age. NG, has been driven by the baby boomers predominately for their retirements.

    As for Sydney, well if the country’s population is set to grow to 50million and if Sydney’s population is going to AGAIN rise another 2 million over this next decade, all those people need somewhere to live.

    Sydney CBD is where the work is. So although prices are hugely inflated there at the moment (particularly in the Inner West) if you can buy within the 5km radius of the CBD you won’t lose out long term even if by some chance there is a down turn in the housing sector. Even in the UK the home prices in London City have gone back up. Recently a mate of mine just got back from a trip to his native city of Istanbul, he informed me that prices for a home in a decent location over there are well in the millions and in comparison, Sydney is actually the more affordable option.

    But the big question comes back to DEBT.

    As a young person, Do you want to have a $500,000+ mortgage to live in a dog box unit or perhaps a house many kilometres away from the city and those lovely Aussie coastal sea breezes ????

    With the exception to a home mortgage,

    I was always taught you save up for the things in life that you want.

    If you can’t afford an item, then you certainly cannot afford to be paying interest on an item that you simply can’t afford in the first place !!!

    So until a bust does happen, I’m saving my $ so that I have a bigger deposit to put down one day.

    If by some miracle the Sydney property bubble does burst, then I certainly don’t wish and cannot financially afford to be caught up in it !!!

  24. Please Dudette,

    Do not fall for the story.. If you park your cash with us, you will get high interest return.

    Unless you are using a first home buyers saving account. With large incentives bought on by 07

    Inflation rates in my opinion are much higher than currently presented.

    Something we all should be aware of.

    prepper

  25. Hard to know what to to Dudette, that’s true, but I can’t see real estate being a wise move for anyone at the moment. Savings are also a bit problematic because they get eroded by inflation and taxes (both government creations). We are in a situation where we are railroaded into ‘investing’ yet if that falls apart we are on our own. We are told this is good for us oddly enough, doublespeak if ever there was.

  26. I agree with dudette. If you can’t afford something, u shouldn’t be buying it…….Common sense really.

  27. I agree with you Chockolate,

    I believe it is time to get ones savings out of the system and into hard assets.
    Into some thing that will hold its value. That’s if you have any Savings
    Buffet is buying up rail infrastructure and rolling stock Shipping farmland… yet recommending stocks.

    prepper

  28. Looks like Negatively Gearded Property Investors have been spared from the ‘heavy lifting’.

    No surprise.

  29. @damian and dudette

    Try telling that to RAMs lol 97% low doc home loans.

    It’s crazy seeing someone in 60k with a kid get a home loan for 600k

    Australia is just asking for trouble

  30. Been watching and waiting to buy for a long time now. Have found 125 acres 1 hour from brisbane 15 mins from the coast for 600k. He has been trying to sell for over 1 mill last year.. 650 square metre house and land packages 10 minutes away are still selling for 500k. How long can they keep it up and do you think this could be a safe buy or are we going to see a lot worst?

  31. The RBA today released a statement telling first home buyers to stay out of the market due to a cyclic downturn about to occur…

    Volume sales of house and land appear to be collapsing which usually puts downward pressure on prices. Like think by the numbers it about a 10-15 % fall over the next 18 months

  32. Reading this blog (and others like it) always makes me wonder where to invest my money so it will weather the apparent coming financial storm. Buy some Euros? Gold? Silver? Real estate? I conclude that investing in further education and learning valuable/scarce skills is an absolute fire cracker. If we all get set back to 0 financially(happened to my granddad! Twice!), your skills stay with you and you can rebuild anywhere any place. If you are an expert in your field it doesn’t matter who you know. No wonder they’re trying to make it harder to get this valuable quality so we have to keep getting herded onto a clearly overcrowded property ladder. Probably a bit off topic but hey it’s friday.

  33. @merrie
    The RBA must be getting concerned that the Chinese buyers might slow their buying due to the downturn in Chinese RE and the corruption investigations.
    Over here in Perth land sales are through the roof with 4000 lot creations in last months Landgate data and I suspect they will go higher before the state govt drops the stamp duty concession threshold from $500k to $430k on July 1.
    There will be a rush of residential building over the next year here just as everyone leaves the state and we fall over the mining CapEx cliff.
    People are already leaving the state in droves as WA busts after the epic boom.

  34. I’m happy as a pig in mud. I just sold my house, and I’m not buying another. Reckon I picked the absolute top. It’s all downhill from here.

    That’s what you get when your nation does nothing but dig up dirt, loan each other money, and sell houses to each other.

  35. @ Having too much fun– Is the 125 acres flat ? In a flood zone ? Is it cleared ? (as this can be a huge cost) Does it have accessible power and water connected throughout the entire property?.
    If you could afford it, then I guess in the long term (30+years) it might be an ok, perhaps even a profitable investment.

    However, if this land you’re looking at is such a bargain, then why wasn’t or hasn’t already been snapped up by a potential developer ??? Rural land on the edge of the urban fridge can be a great investment if the opportunity for subdivision is permissible in the future, the basic facilities are there as well things like sealed roads and other infrastructure.

    @ Steve – I totally agree with what you are stating. My question to you is where are the people who leave WA going ??? Is the trend for them to move back to the East Coast to find work and hence further fuelling the property bubble here ? Or are those skilled workers likely to migrate and move off shore ?.
    I guess none of us can hold a definitive answer however it is of comfort to know there are many other Australians finally questioning the situation here.

    @ Merrie – Thanks for drawing attention to the RBA article. It was an interesting read.

    Has anyone read the following that was posted in Feb ?

    http://www.macrobusiness.com.au/2013/02/the-history-of-australian-property-values/

  36. @ Dudette
    It was news last year that 1.75 million temporary workers were in Australia ( about the size of Perth).
    They mainly consisted of kiwis, 457’s, students and working holiday makers.
    I have met numerous kiwis who are here for the money and will return home to the country they love and their economy seems to be doing better than ours at the moment.
    A high percentage are also not entitled to the benefits in OZ.
    About 40%of 457’s become residents and the record numbers of working holiday makers will drop off.
    From a Perth perspective, a lot of people will head back east, and from an Australian perspective it is a global workforce these days and Australia is an expensive place to live.
    It has also been a long time without a recession and if it happens it might not just be the temporary workers leaving.

  37. From the South China Morning Post-

    The world needs to get ready for a new normal with Chinese characteristics. Reacting to yet more evidence that China’s growth is moderating quickly, President Xi Jinping more or less told us last weekend to get used to it.

    “We must boost our confidence, adapt to the new normal condition based on the characteristics of China’s economic growth in the current phase and stay cool-minded,” Xinhua quoted Xi as saying.

    What that means for China is not just slow growth, but slow growth complicated by a lot of debt, a hint of deflation, trouble brewing in the real-estate sector and very limited policy options.

    What that means for the rest of the world is less demand for natural resources and even less reason to be optimistic about the prospect for more, well, normal labour markets and inflation.

    And the statement so many of us are familiar with-

    As Societe Generale’s analyst Albert Edwards said, ‘All we have in Australia is, at its simplest, a credit bubble (consumer debt) built upon a commodity boom, dependent for its sustenance on an even greater credit bubble in China‘.

  38. Aus is great! It’s like a big mine for dollars to take away and buy quality offshore assets that will be paid off and just waiting for a good retirement long before the shtf. Then all the mutts trapped by a big mortgage can stay here and do the heavy lifting;) Love it!

  40. To those questioning whether to purchase property right now etc… What we all need to remember is that you still need a means to pay it off with!! Job security is a thing of the past.. No job, no income, no mortgage repayments, NO HOME! seems pretty straight forward to me.

    Makes more sense to pay down debt, live within your means, grow your own food, use alternative medicine (cheaper and better for you), up skill yourself ( free online), buy tangible assets (precious metals) and wait for the SHTF. What is fast approaching is the opportunity for the biggest wealth transfer in world history. It’s all about positioning yourself for that opportunity and getting into more debt is not part of it!

    Sound too good to be true and border line “hippy, prepper nonsense”..maybe.. Especially if we’re listening to the vomit coming out of mainstream media. Turn off your TV and do your own due diligence.. Research, read, learn and make your own financial decisions based on YOUR BEST INTERESTS!

    If you wish to leave your kids more than your DEBT… then you owe it to yourself and your kids to take a proactive approach to all your financial decisions.

    Time is of the essence.

  44. @ David C
    Sorry I meant natural herbs and home remedies.. Tried and proven for centuries.
    The stuff Big Pharma can’t patent and make millions of $$ from..

    FYI…Research shows the number one cause of death in US.. Prescription drugs
    http://www.leadingcauseofdeathprescriptiondrugs.com
    (In case we might be interested to learn) especially now that Abbott and his cronies are gonna charge the Aust public the privilege of paying $7 to get sicker and require more prescription drugs.
    But that’s a whole different forum now.. Isn’t it

  45. Or hey GST on ‘Fresh Food’. This lot are bonkers. When will government have the guts to put a tax on junk food instead. Encourage the population to eat crap and provide the panacea of big pharma and gyms. Ridiculous!

  46. @David C

    What the bank will hand you is the remaining debt. The bank is under no obligation to push your house into the market to get ‘fair value’. So a quick fire, low profile mortgagee auction occurs: The bankers and RE agents mate gets a steal, the bank gets it’s money and physical “asset” off the balance sheet and you are left with a debt on nothing.

    What can be greater for the bank than a legally binding contract (ie. the loan) where the asset is sold, funds mostly recovered and the debt remains?

    It’s perfect for the banks, sure it would have been nice if the property rose in value and you remortgage, but it’s still nicely cleaned up.

  47. Am I the only one that is currently left feeling seriously confused by the excessive nature of conflicting reports this week so far ???

    Last night on the news in Sydney they said that house prices are falling here… But in the same breath they say that we had high clearance rates at the Auctions over the weekend.

    The three links below warn of a bubble bursting and say that the prices have dropped over May. However, when one looks at the auction results that is clearly not the message that is conveyed.

    http://www.thebull.com.au/experts_detail.php?id=307

    http://www.macrobusiness.com.au/category/australian-property/

    http://smh.domain.com.au/real-estate-news/property-prices-slip-as-confidence-ebbs-20140602-39eu4.html

    I feel that the bursting bubble and drop off which keeps getting trans-media attention is only occurring over night, and then vanishes into thin air when I awaken to the news the next morning.

    As a potential first home buyer I really want the bubble to burst in Sydney so that I can have a genuinely affordable opportunity to break into the market.

    I get that we need one or more of four things to happen here for a burst bubble, those being either the supply to outweigh the demand (not likely to happen with out numbers of immigration). Interest rates to go up (well they will but we are a long way off the high ones that were in the 1980’s). Mass unemployment (this is on the rise somewhat steady here not anything like the magnitude of Europe). Another Great Depression to occur (well America is constantly printing off more money to prolong or apparently prevent that form occurring).

    I am also aware that people are doing it tough. I see the divide between upper and lower class becoming bigger here in Sydney. The middle class is stretched and the difference there (to me) is between those people who are just making the bare minimum interest rate repayments with those who are actually paying off the property.

    I just want the market to either nose dive completely or continue to rise. As a potential buyer, I need some unity and stability. Rather than all this volatility that these supposed, minor and somewhat vanishing (blink and you’ll miss them) blimps that this market is generating.

    Furthermore, if the market is dropping/down turning, then why isn’t there some ombudsman overseeing the ethical considerations, and filtering ALL the misleading information out there published by individuals that have vested interests and real estate bias ???

    I can only go by my own experiences of what I have observed and the information I can access.

    In my area there has been some really shonky dealing at auctions.
    Houses supposedly selling for 1.65+ million at auction published in the auction results as sold only to re-entre the market twelve to sixteen weeks later for re-auction and on the second time round they only end up fetching under 1.5 million.

    Yet, there is no amendment to the prior weekly clearance rates or the published weekly mean prices.
    So each week it appears like many homes are sold for record prices when they actually aren’t because the sale didn’t end up going through (for whatever reasons).

    Surely there is something rather unethical then occurring within the industry ???

    I mean if the numbers are skewed to project the appearance of high clearance rates, when quite a few sales aren’t actually going through. The mean prices and the details of recent sales prices within the area is then calculated on these collapsed sales, printed and published in papers and across other forms of trans-media. The clearance rates are filtered through many different sources each week (I assume all of which would pass the blame onto the next group when this issue enters public consciousness).

    Is the clearance rate data not something which should or could be regulated more tightly in order to provide buyers with a more accurate figures?

    It’s certainly something that is fuelling all the conflicting market data and information for first home buyers like myself.

    I also find that while I’ve been looking agents have deliberately under valued homes so that they may boast of achieving a sales price that is well above the reserve.

    I’m no rocket scientist but doubt that I’m the only one out there that has actually observed these things.

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