By David Hargreaves
Kiwi households are continuing to get into record levels of hock, while at the same time the average household financial wealth is shrinking, new quarterly household financial statistics from the Reserve Bank show.
The latest figures show that household financial liabilities (mostly mortgages) were $262.57 billion at the end of December - a figure absolutely dwarfing the year-end household disposable income of $156.345 billion.
This means that household debt as a percentage of household disposable income has now risen to 168% - which is a new all-time high, up from the previous all-time high of 167% in September.
These figures will be of concern to the Reserve Bank, which refers to them frequently in public comments.
At the same time, and also worrying from the RBNZ perspective, the percentage of net household financial wealth to disposable income has slipped sharply from 300% in September to 294% in December, which is its lowest level since September 2011 when households were still recovering from the impact of the Global Financial Crisis.
In the past 12 months household debt has risen by 8.4% (in dollar terms by over $20 billion), while disposable income has increased just 4.4% (over $6.5 billion).
Ironically, while the ratio of debt to household income has never been higher, the household debt burden is currently eminently affordable and has been getting even more affordable.
For the year to the end of December the debt servicing cost represented only 8.6% of disposable income, down from 9.4% a year ago.
Thanks to the wave of reducing interest rates, the debt servicing costs have actually been their cheapest in about three years and certainly well down on the peak rate of 13.9% of disposable income seen at the end of December 2008.
However, the RBNZ and indeed the banks, will be concerned about how quickly rises in interest rates - as we are now starting to see - will make those debt servicing costs rise to more uncomfortable levels.
The latest figures don't include house value - with houses of course being the main reason for the debt. There's a lag on the house value information being collated, but the figures up to the end of the September quarter showed that the value of houses and land had shot up 15.8% in the previous 12 months to over $750 billion, which had led to an increase in total household net wealth to over a $1.2 trillion compared with around $1.1 trillion as of September 2015.
23 Comments
The problem is that post GFC the QE of money was to go into paying down debt and developing export earning business. Instead profit driven banks have directed the money into further inflating non productive assets; due to long term limited supply and incompetent management we been in crises - poverty, crime, dis-functionality; a decision of providing affordable housing in order for our communities to function/work normally I believe is inevitable and harsh economic consequences for those who have been forced to over extend themselves or tried to profit of the back of that plight.
In the US a lot of people did pay down debt, many with underwater mortgages have had to sit tight for years both paying down the debt and having house prices rise enough so they could sell up and move if they wanted. It hasn't worked perfectly in the US but it's completely the opposite here.
I would say to others who considering setting up in business or in need of an urgent funding - for any reason @ 2% rate to contact JBF via address below;
Go for it. Don’t be deterred if you don’t have any luck with the banks there are funders - out there like JBF who will lend, even if you are not in the best position.
IMF March 2017
11. The RBNZ’s macroprudential toolkit needs broadening. Exposure limits to high loan-to-value ratios (LVRs) have reduced the potential losses on bank balance sheets if a household defaults. But they do not protect banks against an increase in the number of households defaulting, the probability of which has increased with the rising debt-to-income (DTI) ratios on new loans.
To strengthen household balance sheet resilience and reduce the probability of household defaults under downside shocks, the macroprudential toolkit should be extended to include a DTI or (stressed) DSTI instrument, in line with recommendations by the FSAP. These directly target the most acute household vulnerability.
Household debt at 262.6B and rising at 8.4%
Household income at 156.3B and rising at 4.4%
This suggests that about $13B of income is illusory, not a product of any true economic activity but simply credit creation by the banks.
Moreover, to simply hold the Debt to Income ratio at 168%, credit growth will have to be reduced to 4.4%.
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