Sometimes just one figure is enough to explain what seems to be inexplicable – the continuing rise of Australian property prices despite a recession, a pandemic and worsening unemployment.
That figure – which was produced by AMP Capital – is that the share of household income being used to pay interest on debt has fallen to the lowest level in 35 years.
That is a very big deal because it effectively drops tens of billions of extra dollars straight on to the household bottom line, despite the economic difficulties posed by the pandemic.
According to the figures, interest by Australian households dropped to about 5.5% of disposable income at the end of December.
There is no tremendous secret to the decline in the amount of cash needed to service loans with plunging official interest rates falling all of the way to just 0.1% last November – leading to a rush of lower rate loans on offer, particularly fixed loans.
AMP Capital chief economist Shane Oliver has estimated that the fall in interest payments as a share of disposable income is injecting about $9 billion more into the household sector each quarter compared with two years ago.
Also, the RBA said around $40 billion, or 4% of all disposable income, was made into mortgage offset and redraw accounts between March and December last year.
The figures might also give some pause to the more exuberant borrowers who are gorging on debt at the moment – and help to explain why so many people are saving and paying down debt.
With longer term bond prices spiking though and a complete history of loan serviceability showing a range of peaks and troughs, the one thing that is certain is that the good times never last too long and the current ease of paying loans will one day be replaced by a much tougher time.
What do you think?
Source: https://smallcaps.com.au/why-are-australian-property…/