Last week, the Reserve Bank of Australia’s (RBA) Bulletin noted how high housing costs are disproportionately affecting younger Australians:
Median housing debt-to-income ratio for Australians under 39 years of age has risen 29 per cent in the six-year period to June 2010, compared to the 20 per cent rise for the oldest Australians in the same time.
The increases leave younger Australians with a median housing debt of 333 per cent of household income or more than double the 159 per cent for the over-60 crowd…
“The increase in the cost of housing has affected younger households, whether renters or purchasers, more than other age groups”, said the report…
Now the Galaxy Australian Debt Study has found that younger Australians are more stressed about repaying debt than any other generation:
People aged between 24 and 35 topped the debt anxiety list, with nine in 10 concerned about making debt repayments.
Big purchases such as a first home were largely to blame for the stress, with 55 per cent of people in this age group nominating rising rents and mortgage repayments as their biggest financial concern, according to the Galaxy Australian Debt Study…
“While most Australians are trying to be financially responsible, it is worrying that people aged 25 to 34 appear to be feeling the greatest strain,” Matthew Strassberg, senior adviser at Veda, the debt investigation company which conducted the survey.
The survey also found 15 per cent of people in this age group were likely to apply for more credit over the next six months, compared with 9 per cent in the remainder of the population.
This is where it can all go wrong, Mr Strassberg said.
“It is concerning that there are people struggling with their current debt levels but are turning to more credit as the answer, potentially edging closer to a debt spiral,” he said.
“While people can have large credit commitments, the debt spiral begins when a person starts slipping behind on payments and seeks yet more credit as the solution.”
The bi-annual Galaxy survey reveals Australians are facing unprecedented levels of debt stress as 82 per cent of the population worry about meeting debt repayments, up from 75 per cent in September 2010…
The research also suggested one in five Australians were struggling to pay off their credit commitments.
As a means of coping with the stress of debt, 87 per cent of consumers have chosen to cut back on everyday spending and lifestyle, 49 per cent have cut back on groceries and 35 per cent received assistance from family or friends…
“Borrowing from family and friends is common, so is wanting to access superannuation early.
That more people are worried about repaying debt now than in September 2010 is interesting given that the official ratio of household debt to disposable income has fallen over the past year, from 154% in September 2010 to 151% in September 2011. Perhaps the reasons for the rising anxiety levels have to do with:
- Housing prices falling. 90% of household debt relates to mortgages. And with home prices now falling, households are losing the ability to simply sell-up, repay outstanding debt, and walk away.
- The economic (employment) outlook is far less certain, owing to the slowing domestic economy (outside of mining) and overseas concerns (including Europe and China).
With the baby boomers starting to retire, and needing to liquidate their housing assets to fund retirement (remember: they own roughly half of Australia’s housing assets, including 57% of all investment properties), the question beckons: will younger Australians be in the position to buy these homes from the boomers at current prices?
From the above studies, the answer is doubtful.
