With Australia’s property market going gangbusters, it is tempting to assume we are also increasing household debt as new borrowers gorge on cheap credit.
However, the numbers don’t support that idea – well, at least not yet.
It is true that new mortgage issuance was running at a record high in January, mainly driven by owner-occupiers who are trying to improve their surroundings after a series of COVID-19 lockdowns.
That is hardly surprising given that with stimulus money sloshing around the economy and housing loan rates at record lows, borrowing capacity is high even with house prices rising strongly.
Whatever the reason, overall Australian mortgage debt is hardly increasing and at the same time, personal loans are also running at record low levels of around half of the peak recorded in late 2010.
The overall stock of personal loan commitments fell by 12.4% in the year to January – a much faster rate than the fall recorded during the Global Financial Crisis.
This may hold the key as to why the Reserve Bank of Australia (RBA) appears to be so sanguine about the current property boom, effectively adding more petrol to the fire by saying that interest rates will stay low for several years.
If Australian household debt is not rising and could indeed be falling when you take into account personal loans and credit card debts, then the fast rise in property prices may not be as dangerous as it seems.