Households hit brakes on demand for debt

More evidence of the improving position of household balance sheets emerges from the annual analysis of the latest data available from the Household, Income and Labour Dynamics in Australia Survey, and summarised by the Reserve Bank of Australia in its March Bulletin.

In 2010 (the latest period covered by the survey), roughly one third of households increased their nominal debts between 2006 and 2010, one third reduced their debts, and one third maintained the same level of debt (which for most of these households was no debt at all).

The RBA noted that this was in contrast with 2006 (or two years before the financial crisis) when 40 per cent of households increased their debt while 26 per cent reduced their debt.

The 2010 HILDA survey otherwise confirms many current themes, including the skew of debt towards those with income and assets that suggest they can manage repayments on substantial debt.

The top 20 per cent of income earners owe almost half of all debt outstanding, the RBA said, but half owe less than $50,000, and, as noted, one-third of households have no debt at all.

Property debt accounted for 80 per cent of household debt in 2010 (with loans over the main residence making up 57 per cent of total debt, and other property debt making up 23 per cent).

Business debt accounted for six per cent of total debt, with the remainder comprised of credit card, HECS and other personal debt.

The top 40 per cent of households, measured by income, accounted for almost 70 per cent of debt.

The HILDA survey shows that debt increased at a slower pace between 2006 and 2010, a trend consistent with other data on the supply of credit.