Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), & CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he's one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written, yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data & charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, author of the New York Times bestsellers 'End Game' & 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - author of Things That Make You Go Hmmm, one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, 'MacroBusiness'.

Sunday, 13 August 2017

'Til household debt do us part

Debt ratios 

Later in the year I'll be speaking at a banking conference, partly on the subject of household debt.

Human nature dictates that readers feel drawn to commentary on the subject tending towards the binary: it's either a complete disaster set to collapse in a heap, or "she'll be right, mate".

First a quick look at a few of the headline numbers, then.

There's no doubt that gross household debt has increased in Australia, to its highest level on record this year.  

It's not that hard to see why.

With interest rates hitting their lowest level on record, households have felt confident in servicing more housing debt because it's costing them less to do so, at least for now. 

As is so often is the case, the headline figures tell only a small part of a considerably more complex story, with the underlying dynamics presenting a range of possible outcomes. 

For example, some Australians have been taking advantage of the low interest rate environment to get well ahead on mortgage repayments.

About 2 in 3 housing borrowers are at least a month ahead of their repayment schedules, and fully half of borrowers are now 6 months or more ahead. 

Meanwhile households are now sitting on well over $1 trillion in currency and deposits, which is unprecedented.

Net off these balances, and the household debt position takes on a different appearance, staying at around the same level since 2004. 

Moreover, asset prices have risen solidly to the extent that the household debt to assets ratio has now fallen to just 19.5 per cent. 

New trends

Some households are clearly finding life much easier than others then.

The Reserve Bank of Australia (RBA) would also be at pains to point out that analysis of the distribution of household debt shows that the rise has been mainly attributable to higher income households (the opposite of what happened in the US in the lead up to the subprime crisis). 

Quite a substantial chunk of the increase in household debt relates to older Australians taking on a mortgage to buy an investment property, something far less common a generation ago. 

The most important indicator of all, argues the RBA, is that indicators of household stress are contained. 

That's not to say the poop couldn't say g'day to the fan if unemployment or interest rates were to rise quickly, but it's nevertheless where things are at today.

A more immediate issue is that if households are busy racking up offset balances or paying down mortgages then they aren't spending on consumption, which presents a different set of challenges.