Thursday, October 18, 2007

All of this talk about a debt crisis, it couldn't be wrong could it?

We appear to be regaining, rather than losing, control of our finances. We are up to our eyeballs in debt and it is getting worse, right?

That’s what the message from the latest Housing Industry Association’s affordability index seized on by Kevin Rudd yesterday.

“This is the starkest report on housing affordability that we have seen in this nation since these reports first began being produced nearly 25 years ago,” he said.

“We now have first home buyers spending 31.7 per cent of their income, their gross income, on their mortgage repayments. I contrast this with 17.5 per cent back when Mr Howard first became Prime Minister.”

It was reinforced by a small ING Direct survey that found only 46 per cent of families managing to save money, compared with 54 per cent a year ago...

But it doesn’t jell with more important and more reliable data released yesterday by the Reserve Bank.

We are easing back on our use of credit cards. That’s a fact, not the result of a survey.

In August the average credit card balance was $2,999 – little changed on July’s $3,002.

And the number of credit card cash advances was down almost 6 per cent on the year before.

We appear to be less in need of credit than we were.

We are still spending strongly, so it may represent a conscious decision to use credit cards less in the face of concern about interest rates.

Or it may be that the booming jobs market and the July tax cuts have reduced our need to borrow.

Whatever the reason, the Reserve Bank figures suggest that we are regaining, rather than losing control of our finances.

Which we might well need to if, as half the financial market expects, the Bank pushes up interest rates next month.