A horrifying graph highlighting skyrocketing levels of household debt shows how vulnerable residents in Australia’s largest cities have become to economic shocks.
The Reserve Bank of Australia board was warned of the dangers of rising debt levels in its most recent board meeting.
A chart released after the July 3 meeting revealed household debt levels are at record highs – now almost double the annual household disposable income.
A horrifying graph highlighting skyrocketing levels of household debt shows how vulnerable residents in Australia’s largest cities have become to economic shocks (pictured)
The Reserve Bank of Australia board was warned of the dangers of rising debt levels in its most recent board meeting (stock image)
The debt rise is matched by a surge in housing prices, which are now over five times higher than the amount of disposable income households have available per year.
Minutes from the RBA board meeting detail members’ concerns about household debt, which has increased more than household income for the past 30 years.
‘Households with high debt levels are more vulnerable to economic shocks and therefore more likely to reduce consumption in the face of uncertainty about their future income,’ the minutes observed.
The meeting heard that while much of Australia’s household debt is owed by middle-aged and higher income earners, much is held by lower-income households.
A chart released after the July 3 meeting revealed household debt levels are at record highs – now almost double the annual household disposable income (stock image)
This is particularly worrying for homeowners in Melbourne and Sydney, where housing prices have risen dramatically over the past decade.
RBA members noted that while Sydney has seen a five per cent drop during the previous year, this is largely due to falls at the top of the market.
‘Prices in Sydney and Melbourne had fallen the most for more expensive properties, while prices of lower-priced properties had been little changed,’ the minutes said.
‘In the other state capitals, housing prices had been fairly steady, with the exception of Hobart, where prices had picked up markedly given strong demand and supply constraints.’
Further worries were present in wage growth numbers, with members observing sluggish increases compared to trends over the preceding two decades.
‘Growth in household income had remained subdued over the most recent couple of years, with growth in all components of income remaining below average,’ the minutes warned.
In response the RBA has kept cash interest rates unchanged at 1.5 per cent, saying the low level of rates is supporting the Australian economy and in line with achieving inflation targets.