From Lombard Street:
Households have been borrowing more and saving less, suggesting their finances are increasingly vulnerable to shocks – not least in view of stretched property market conditions. This is a topic that was repeatedly raised during our recent visits to Australian clients. But a closer look suggests that consumers have been quite sensible in their savings behaviour, adapting to the large swings in terms of trade.
Spurred by easy monetary policy and a buoyant property market, the leverage of households – predominantly mortgages – has risen to a record 1.8 times income. At the same time, their savings ratio has been declining through the RBA’s extended easing cycle. The drop has gathered steam in recent quarters, raising questions about the robustness of household balance sheets given frothy housing market conditions.
