Debt ratio now falling
The household debt to annualised disposable income ratio was revised down again for the preceding quarter, meaning that the ratio peaked at 1.89x.
As mentioned here previously, for all the hyperbole the ratio was never going to get to 2x annualised disposable income (whatever relevance that threshold may or may not carry) with an almighty cascade of loans having been switched across to principal repayment.
Arguably household debt ratios had never increased that much on a net basis since 2006; rather interest-only borrowers were instead using mortgage buffers and offset accounts.
Even today in aggregate households and small businesses are sitting on a record war chest of $1.1 trillion in cash and deposits.
But either way the gross debt ratio has now peaked out and ticked down in the September 2018 quarter, and it will likely be some way lower by the end of the calendar year.
This ratio is set to continue its decline henceforth due to lower average loan sizes, slower lending volumes, and the lowest percentage stock of interest-only loans across the available data series.
On the income side of the equation, wages growth is also now tracking at a 3½ year high, albeit from a chronically low base.
Note that this debt ratio is calculated from after tax incomes, and with the MYEFO update today pointing towards a Budget surplus there will presumably be promises of tax cuts being bandied around as the election looms.
