We mentioned in today’s Markets and Money that houshold debt is not only rising nominally, but more importantly it’s rising as a percentage of disposable income. Even if wages rise (and as the posts above show, they are not rising all that fast) they must rise faster than debt to make the new debt serviceable, instead of being an intolerable burden.
As is, Aussie debt levels have overtaken all major Anglo-Saxon economies except the Netherlands, when measured as a percentage of diposable income. The flip side, it could be argued, is that mortgage debt also represents the building up of equity in a household’s most valuable asset…namely…a house. That is plausible.
But the real tale will be told when we find out how many new homewoners are able to hang on to their homes as interest rates rise. With homes already stretching the limits of affordability for first-time buyers, it will take even more debt–and an even larger percentage of income (already 30%)–just to put someone in a new, median-priced home. That sounds and looks like trouble to us.