Wednesday, December 08, 2004
Financial warning from Spicers
The good news: the average household is $28,000 richer than a year ago. The bad: debt is rising faster than asset values. "The last 12 to 18 months has been a boom time for households," says Spicers chief economic adviser Rozanna Wozniak. Its Household Savings Indicators put national net worth at $352 billion. But those boom times are coming to an end, with debt levels rising faster than asset values in the September quarter.
The average household is now worth a net $234,000, up from about $206,000 in September last year, but if house prices fell next year, net worth might also dip. Housing accounted for 74 percent of household assets, up from 60 percent a decade ago, even though fewer people now owned their home. Rapid house price rises meant homeowners had been "amply rewarded by their borrow-and-spend strategy". But the rate of growth had slowed from 7.5 per cent in the September 2003 quarter to 2.4 per cent in the same quarter this year.
Household debt in percentage terms rose 3 percent in the September quarter to $111 billion, and household incomes had not kept pace with the growth in debt-servicing commitments. Higher debt levels and higher interest rates were squeezing households' cashflow.
The “borrow and spend” behaviour that was evident amongst many households during 2003 and 2004 is expected to cause increasing
problems as 2005 progresses. Pressure is expected to come from
two directions: firstly household balance sheets, and secondly their cashflow.
An increasing percentage of households’ cashflows will be diverted towards debt servicing commitments. The combination of higher interest rates and higher debt levels will start to bite.
The good news: the average household is $28,000 richer than a year ago. The bad: debt is rising faster than asset values. "The last 12 to 18 months has been a boom time for households," says Spicers chief economic adviser Rozanna Wozniak. Its Household Savings Indicators put national net worth at $352 billion. But those boom times are coming to an end, with debt levels rising faster than asset values in the September quarter.
The average household is now worth a net $234,000, up from about $206,000 in September last year, but if house prices fell next year, net worth might also dip. Housing accounted for 74 percent of household assets, up from 60 percent a decade ago, even though fewer people now owned their home. Rapid house price rises meant homeowners had been "amply rewarded by their borrow-and-spend strategy". But the rate of growth had slowed from 7.5 per cent in the September 2003 quarter to 2.4 per cent in the same quarter this year.
Household debt in percentage terms rose 3 percent in the September quarter to $111 billion, and household incomes had not kept pace with the growth in debt-servicing commitments. Higher debt levels and higher interest rates were squeezing households' cashflow.
The “borrow and spend” behaviour that was evident amongst many households during 2003 and 2004 is expected to cause increasing
problems as 2005 progresses. Pressure is expected to come from
two directions: firstly household balance sheets, and secondly their cashflow.
An increasing percentage of households’ cashflows will be diverted towards debt servicing commitments. The combination of higher interest rates and higher debt levels will start to bite.
