October, 2004

September, 2004

Comment

While public debt continues to fall, private sector debt is a major concern. Households are carrying a lot more debt. Household debt was about 65% of annual household income in 1990. Today it is about 130%. Although no-one is suggesting that you should pay off your debt with one year's annual income, this statistic is a useful measure of a household's ability to repay debt. Some economists point out that with housing values rising, household equity is also much higher today so we shouldn't get too concerned about such high levels of debt. But the ratio of household debt to household value has only risen from around 20% in the 1980s to around 30% today. And Westpac commented recently that house prices are expected to fall by 5% on average over the coming year.