Charles Bukowski

Households set to feel debt squeeze

15 posts in this topic

I removed the only line from this article that I didn't think was interesting enough to post

Households set to feel debt squeeze

CHRIS ZAPPONE

November 20, 2009 - 11:36AM

Households will begin to feel the impact of more interest rate rises, after years of racking up more debt, a report shows today.

However, the research group noted that rising household debt would become a bigger factor for Australians as interest rates rise.

"At this point in time, it is likely that interest rates will rise which means that many Australians may see an increasing share of their disposable income used to service their debts," the report said.

Household debt as a share of disposable income has been rising since the early 1990s, surging to 150 per cent.

"The biggest diver of this rise in debt was for housing."

Despite the higher debt levels, the crucial factor for many Australians is the ability of households to service their monthly debt, the Melbourne Institute said.

The Australian Bureau of Statistics released data this month showing the amount owing on homes had almost doubled to $150,000 from 1994 to 2008, while the median home value had doubled during the period to $400,000.

"Rising household debt in Australia is increasingly on the minds of many economists and policy makers," the report said.

"While debt servicing remained about constant over the 1990s, interest payments to disposable income have risen sharply, also roughly doubling over the past ten years."

The RBA raised interest rates by in October and November to the current level of 3.5 per cent, while credit markets betting on a 63 per cent chance of a rate rise in December according to data from Credit Suisse.

czappone@fairfax.com.au

http://www.watoday.c...91120-iq96.html

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"Household debt as a share of disposable income has been rising since the early 1990s, surging to 150 per cent."

Huh? What does this mean?

It sounds cool but I am not sure what it means:

I have $100 after tax

My bills (including mortgage) are $80

I have $20 for booze and hookers

Meaning my mortgage is $30

Now that is patently stupid as all get out, no one has $100 after tax or an $80 mortgage (and booze is non discretionary for me, but I exclude myself for obvious reasons).

So if we say 60K pa gross we get $900 a week after tax and double it for 2 adults on average wage we have $1800 / wk (I can't remember average household income)

If we say that the average mortgage balance is 300K(?)

Then we have weekly interest payments of about $290 a week

So therefore discretionary income is 2/3rds of 290 = about 190 /wk.

Now if we look back at the after tax of 1800 that means that they spend:

$200 on booze and hookers

$300 on mortgage (I rounded up by 10 bucks for ease of brain)

$1500 on other bills

I don't know if that is realistic. $1500 a week on other bills seems very high to me but then I have a pretty low cost lifestyle and no short people.

Anyone that knows the average household income / has short people care to offer an opinion on the math?

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Now that is patently stupid as all get out, no one has $100 after tax or an $80 mortgage (and booze is non discretionary for me, but I exclude myself for obvious reasons).

Oi, I have a $40pw mortgage and the other one isn't that much higher than $80 :P Which is mildy irritating as one of the houses is about to rent out for $110pw and the combined mortgages are, sadly, more than $110. I got the house we're living in appraised at $200pw rental and the one we want to build as $280pw so if we lived in a cardboard box rent free we could just live off rents. Yay.

Average gross income is $1200 now I think. You can't ask people on this kind of forum how they spend their money, this kind of forum attracts tightasses. Its a sustainablity/saving for a house thing.

Everyone I know in real life (except us and my parents) manages to spend 100% of their income on Stuff, and a fair amount of that income seems to go on repaying loans of various kinds - furniture, house, car, electrical toys. The income goes up a bit, they get the house revalued and spend the entire rise in income servicing an increase in their mortgage to buy more of the same. A loan gets paid out, they get a new one. Then they complain about having no money when groceries or petrol prices or interest rates or the price of cigarettes go up.

I think they might mean that people on average owe 150% of their disposable annual income. Disposable is after essentials like food, rent and insurance but before non-essentials like booze and hookers. But don't forget they always average over every household in Australia, so all those pensioners with no credit cards and a paid-off house get thrown into the melting pot with the overcommitted dinks. And there's some very, very high incomes in the country but the average/median household income is relatively low. I really wish they'd break these things up by age or income level.

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Oi, I have a $40pw mortgage...

revenge! hehehe

I agree with the substance of your post and was simply pointint out that while "People owe 150% of what they can spend" is a pretty stupid statement for more than one reason.

The math reason at least is hard to argue with.

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Basically it is weighing on policy makers minds because of this:

Lets say house prices doubled over 10 years from 250k to 500k

Initially this has little adverse affect on the economy becuase few have bought their first home at a high debt level. New entrants to the housing market only represent a small proportion of total in the housing market. The rest of the market have increased spending patterns due to the wealth affect of owning an asset worth 250k more over 10 years. So at first rising house prices are terrific and stimulate your economy due to the wealth affect.

so we have 2 groups of people those who bought in pre high house prices and those who bought in post house price rises.

As group 2 grows compared to group 1 high house prices no longer contribute to spending but hinder it. Governments have always understood this and even in the 70s and 80s would subsidise new housing.

So rising house prices are good for the economy and spending patterns, high house prices without growth are bad. Unfortunately ever increasing house prices are not sustainable so eventually you have to either accept high houses as the end of the road and accept the punishment for rising prices and their long term affect on consumer spending and spending in more productive parts of the economy. Alternatively you have to through taxation and subsidies reallocate capital away from housing and allow house prices to fall so that debt levels again begin to shrink.

Falling house prices are of course even worse for consumer spending in the short term, in fact many see this housing cycle as the cause for recessions and not just the most recent one in the US. So better to stop house prices rising in the first instance so you don't have to take your medicine so to speak later.

So we have a choice in Australia we have a government with little debt so we could either push house prices up, push them down or allow them to stagnate. But even at current levels over time the indebtedness of Australians will grow. So while the average now is 150k per household which is not bad that is made up by group A with little debt and lots of equity and group B no equity and lots of debt.

What to do? I hope Ken Henry is going to play the right card on this, or will we put off reform till we are beyond help.

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Unfortunately ever increasing house prices are not sustainable

Actually they are, but only if they they keep track with other rising things, like wages. Its when they grow faster than wages grow for too long things get unsustainable.

This is where the bulls step in and say but if you earn $20,000 more you can leverage that and borrow $80,000 more so house prices can go up forever! But they always forget that at some point, the repayments on that extra surpass your disposable income ...

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Basically it is weighing on policy makers minds because of this...

Now that would have been a much better article.

Naively I believe that Kochie (for all the hatred of him) became famous because he started talking on tele in a way that was actually more useful than the other economic types of the time.

Maybe you ought to try working out where the next break point between internet freaks and general populace lies...

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Actually they are, but only if they they keep track with other rising things, like wages. Its when they grow faster than wages grow for too long things get unsustainable.

This is where the bulls step in and say but if you earn $20,000 more you can leverage that and borrow $80,000 more so house prices can go up forever! But they always forget that at some point, the repayments on that extra surpass your disposable income ...

Sorry absolutely, I should have said house prices outside inflation are not sustainable. And probably wage inflation is as good a measure as any as either of these will approximately follow costs of production as they do on homes themselves and physical site costs, but whatever has happened in the last 20 years has taken homes outside this band, because extra costs have been added. Yes they can go a lot higher yet than here. As Frank points out our homes are affordable compared to Hong Kong, Singapore, London, New York and lots of places, so if governement wants to they can take house prices a lot further, i.e. with increased utility rates 2 families sharing a home we could afford million dollar median house prices no worries.

I just hope taxing new houses at 500k a pop is not how they decide to keep house prices on the rise for a few more years though. As I have said elsewhere the expense in new houses is accidental in my opinion, and only now they are starting to look at the big picture affect of this.

Of course once we arrive at that destination and stay there for a generation we will not have the lifestyle we really should when we have a country such as ours. Why have Hong Kong like costs of production just to see ever increasing house prices? I suppose all good for the next 20 years, I hope Ken Henry does not go for this option....

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Now that would have been a much better article.

Naively I believe that Kochie (for all the hatred of him) became famous because he started talking on tele in a way that was actually more useful than the other economic types of the time.

Maybe you ought to try working out where the next break point between internet freaks and general populace lies...

I think I would pitch more toward the internet freaks somehow, I reckon Iv'e twisted a few arms on the supply side arguments in my time here and on GHPC, perhaps hubris.... I think the difficulty is that while demand side things like grants and easy credit which we spend a lot of time considering were required to enable high house prices, without supply restrictions we should have seen a US style explosion in building to take advantage of our stupid spending pattern...

Anyway I am starting to like Tanya. This problem will be fixed over the next 5 years I think. I possibly will vote labour at the next election as long as they start acting on these observations they are starting to make, and I would not have said anything like this a month ago. It all has started to make sence, they said they would look a housing affordability we had a world wide housing led crash, and of course that is not the time to let it rip as Rudd would say, so they steadied the ship and now it is time to fix the problem and they are getting down to it.

Land Charges Pricing Out Buyers The Australian 3rd November 2009

Ms Plibersek told The Australian yesterday big infrastructure levies were strangling land development and, partly as a result, the nation was not producing enough new housing blocks to meet population growth.

The Henry review into taxation was considering reforms to slash costs, she said.

The Urban Development Institute of Australia backed Ms Plibersek's concerns, warning that government charges were making land development unprofitable. The cost of a block of land in Sydney included as much as $100,000 in state and local government charges, it said.

Not to mention federal GST!

"We are not building enough houses every single year, and part of the problem is the very high cost of a serviced block," Ms Plibersek said, noting that states and councils were placing heavy levies on developers in an effort to meet the cost of providing community infrastructure.

"It might be that the blocks are available, but builders aren't building on them because they don't think they'll make enough of a return on the money they are spending."

Tanya, you are one smart cookie. :wub:

Somewhere in the middle there has to be a sensible ground where you put in the very important infrastructure you need to build a community - but you don't expect the poor old first-home buyers to pay for allthat in the cost of their first home, which is the sort of situation we have at the moment."

Yes that would be regressive taxation, taxing those least able to afford it, and at the same time giving a windfall gain to the vast homeowning elite out there.

And I thought she sold all us first home buyers out, but to actually say this out loud we are going to see some action at last!

Mr Holmes said land developers were seen by governments as an easy target for revenue-raising, but the charges were simply passed on to home buyers.

Over time yes, Mr Holmes of course they are going to pass the costs on just like when the price of your materials goes up or the cost of labour of course you put your price up. To you a government tax or a material cost is the same thing.

Anyway since this article I have been pretty excited to say the least.

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...Anyway since this article I have been pretty excited to say the least.

there you go, get the f*ck out there man. Don't screw around with the internet it is full of every type of insane bastard you can find and they are all on you tube trying to tell me how they killed the media.

Strangely they all do it for free.

If I were you (knowing you career movements currently) I would say "go to ABC2, tell them they have no business report specialist, I will do that for you, pay me the bullsh*t wages you pay staffers or whatever, just let me on the air, here are a few of my texts and here is a video of me delivering those texts"

Face it AK ain't exactly rocking out the charisma. Kochie is not either.

You have a fairly new expression of the problem, may well have a solution, and will certainly draw voters in the current environment int he way kochie did 7 (?) years ago.

Hell that kind of stupid activity is how I got into star wars and had an action figure made of me, if you don't do it (an afternoons f*cking around with a video camera, they don't need pretty, they don't need awesome camera skills, they have the cameras and the makeup people) you will regret having had this idea and doing f*ck all with it except tell stupid internet people like me.

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[T]hey don't need pretty, they don't need awesome camera skills, they have the cameras and the makeup people) you will regret having had this idea and doing f*ck all with it except tell stupid internet people like me.

Well I'd be stuffed if they had to be pretty....

In truth I would have to learn when to use their and there and that may be a bridge to far. We will see. On posting on the internet; If you look at my earliest posts on bubblepedia only 15 months odd ago you will see that I had absolutely no idea about housing with only my Yr12 economics to rely on. It is posting on bubblepedia and GHPC and critical examination of this by everyone that gets you to consider your own position.

I might start by writing to my local paper with a few freelance articles, I suppose it cannot hurt. Apparently you can score about $500.00 for one of those when they print.

Thanks for the motivational post tor, I might give it a crack; economics by an engineer.

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Well I'd be stuffed if they had to be pretty....

In truth I would have to learn when to use their and there and that may be a bridge to far. We will see. On posting on the internet; If you look at my earliest posts on bubblepedia only 15 months odd ago you will see that I had absolutely no idea about housing with only my Yr12 economics to rely on. It is posting on bubblepedia and GHPC and critical examination of this by everyone that gets you to consider your own position.

I might start by writing to my local paper with a few freelance articles, I suppose it cannot hurt. Apparently you can score about $500.00 for one of those when they print.

Thanks for the motivational post tor, I might give it a crack; economics by an engineer.

oh soooo many responses, most of them have faggot, bitch, wanker and c**t in them. Then I realise (partially due to someone hitting me) that I have not slept in a whiles and she knows when I am being sensible and when I am just being a dick :)

So the approved response is, quit f*ck arsing around, take a chance and waste a f*cking day (I almost got to call you faggot at that point but wasn't allowed, I am only just allowed to mention that I was going to call you faggot but wasn't allowed to, and now apparently must explain for some newbie f*cks that when I say faggot I am using a phrase which captures the weak (I can say weak) will attributed to homosexual people in, say, the 70's as opposed to any actual personal feeling regarding who anyone has sex with (except, I am allowed this, you totally can't have sex with my girlfriend) but aside from that you can shag anyone you like)

And so, apparently, I can say that if you do not spend an afternoon filming yourself to prove you can speak and firing that with a decent cover letter to ABC2 then, and I am allowed to say this, you have to buy me a beer.

I know that being called a faggot is a much bigger Back to the Future kind of challenge than Buy me a Beer but hey we does what we cans.

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WTF, I typed a reply to Tom and all I end up doing is quoting something incomprehensible from tor! *Must learn new forum's interface*

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oh soooo many responses, most of them have faggot, bitch, wanker and c**t in them. Then I realise (partially due to someone hitting me) that I have not slept in a whiles and she knows when I am being sensible and when I am just being a dick :)

So the approved response is, quit f*ck arsing around, take a chance and waste a f*cking day (I almost got to call you faggot at that point but wasn't allowed, I am only just allowed to mention that I was going to call you faggot but wasn't allowed to, and now apparently must explain for some newbie f*cks that when I say faggot I am using a phrase which captures the weak (I can say weak) will attributed to homosexual people in, say, the 70's as opposed to any actual personal feeling regarding who anyone has sex with (except, I am allowed this, you totally can't have sex with my girlfriend) but aside from that you can shag anyone you like)

And so, apparently, I can say that if you do not spend an afternoon filming yourself to prove you can speak and firing that with a decent cover letter to ABC2 then, and I am allowed to say this, you have to buy me a beer.

I know that being called a faggot is a much bigger Back to the Future kind of challenge than Buy me a Beer but hey we does what we cans.

The beer is on me I am afraid.

Though if I had one or two more beers I might have said otherwise. Hey maybe thats a plan, I will buy you a few beers next time I am in Syd, (after Christmas if you are around?) then you can film me at the local and call it economics over beers.

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WTF, I typed a reply to Tom and all I end up doing is quoting something incomprehensible from tor! *Must learn new forum's interface*

Trick is to click the right 'reply' button, not that quoting nonsense :)

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