Spring 2014 Economic Overview – Part 3 | Tim Lawless

Today we present the 3rd in our 4 part  Spring 2014 Economic Overview series of blogs, taken from RPData’s recently released  quarterly Australian property market and economic review.

Yesterday I discussed interest rates inflation and unemployment rates.

Today I cover household debt,  disposable income, population growth and household savings around the country-  they are slowing down and beginning to fall.

Household savings are starting to dip

  • Over the March 2014 quarter, the household savings ratio was recorded at 9.7%. Savings-586x330
  • Compared to savings levels through the 1990’s and early to mid-2000’s savings levels remain high however, they have started to dip.
  • Over the past two quarters the household savings ratio has been below 10%, this hasn’t happened for consecutive quarters since June 2010.
  • As the chart shows, the household savings ratio started to rise in the mid-2000’s and has been much higher since late 2008.
  • More recently the ratio has started to fall which is likely due to a pick-up in retail sales and growing demand for housing credit.
  • With low returns on cash savings we are starting to see consumers open their wallets again.
    As a result we may see further declines in household savings over the coming quarters which is a positive sign for the Australian economy.   households saving ratio

Households are heavily indebted, largely due to housing debt

  • According to the RBA, total household debt as at March 2014 was 149.9% of disposable income. Of this total 149.9%, 135.8% was housing debt.
  • Somewhat concerning is that recently household and housing debt has once again started to climb after having been fairly flat since 2006.
  • Household debt was at its highest level since September 2010 during the March ’14 quarter and housing debt is now at its highest ever level.
  • Although housing debt is very high, it is clearly also a function of high house prices across the country.
    Despite housing debt to disposable income sitting at 135.8%, total housing assets to disposable income were recorded at 429.4%.
  • Although housing debt is very high, the value of those assets si significantly more than the value of that debt.
    debt to disposable

Disposable incomes are growing at a very low rate

  • Although mortgage rates are low and home values are increasing, household disposable incomes are seeing very sluggish levels of growth. money1
  • One wonders in light of this how long the current growth in home values can continue when growth in disposable incomes is so low.
  • Over the 12 months to March 2014, household disposable incomes increased by just 2.2%.
  • As the chart shows, disposable income growth has picked-up recently but is still well below the rate of inflation.
  • Over the past 20 years, household disposable incomes have increased at a compound annual rate of 3.7% which indicates current household income growth is significantly lower.
  • With disposable income growth low, the ability of households to spend more on housing as values rise is likely to reduce.
  • Should the growth in household incomes remain around current levels it may curtail future growth in home values.annual change

Population growth has begun to slow

  • As at the end of 2013, the national residential population was estimated to be 23.319 million persons.
  • The population increased by 396,154 persons or 1.7% which was slightly lower than the 402,933 (1.8%) person increase recorded over the 2012 calendar year.
  • Population growth remains strong on an historic basis however, the rate of growth is slowing, largely due to a slowdown in net overseas migration.
  • Over the 2013 calendar year, there were 235,797 net migrants to the country accounting for 60% of total population growth with the remaining 40% (160,357) coming from natural increase.
  • The annual rate of natural increase has fallen by -0.9% over the year compared to a larger -2.2% fall in net overseas migration.   quarterly increase

Most of the population growth is taking place in the capital cities

  • Based on data to June 2013, the total capital city estimated population was 15.343 million persons compared to an estimated 23.135 million nationally. population
  • Almost 2 out of every 3 Australians (66.3%) lived within a capital city as at June 2013.
  • In fact more than 1 in 5 Australians lived in Sydney (20.6%) with almost 2 in 5 Australians living in either Sydney or Melbourne (18.8%).
    If you include the population of Brisbane (9.7%) and Perth (8.5%), 57.6% of Australians live within the largest four cities.
  • Over the 12 months to June 2013, the national population is estimated to have increased by 407,027 persons.
    Of this total annual increase in population, 71% of population growth was in Sydney (19.9%), Melbourne (23.5%), Brisbane (11.1%) or Perth (16.6%).
  • While the national population recorded growth of 1.8% over the 2012-13 financial year, population growth across the capital cities significantly outstripped regional population growth.
    The combined capital cities recorded population growth of 2.1% compared to an increase of just 1.2% across regional areas. poulation

Housing credit keeps expanding with investment lending gathering most pace

  • Over the 12 months to June 2014, total housing credit has increased by 6.4%.
  • Owner occupier housing credit has risen by 5.3% while investor housing credit has increased by 8.7%.
  • Housing credit growth had expanded at its fastest pace in June 2014 since March 2011.
  • Owner occupier credit has risen at its fastest pace since March 2012 and investor housing credit has risen at its fastest pace since May 2008.
  • The rising credit is reflective of the preparedness of banks to lend for housing as well as demand for mortgages with mortgage rates currently at such low levels.annual change2

Watch out for tomorrow’s blog where I cover other statistics including interest rates, unemployment levels, inflation, housing costs and more.

If your missed yesterday’s Spring 2014 Economic Overview – click here


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Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au

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