Friday, March 27, 2009

RBA to Australians: 'You've never had it so good'

Many of you anyway

DESPITE talk of recession and worldwide financial crisis, Australia's Reserve Bank believes many of us have never been better off.

Backing the claim with statistics in half-yearly Financial Stability Review the Bank notes that retirees are an exception.

Households on wages have seen their real after-tax incomes jump an extraordinary 10 per cent in the past year - more than double the usual rate. The Bank says the December stimulus payments were responsible for much of the boost along with tax changes mid-last year that cut payments 3 per cent.

For households facing interest bills things are even better. The Bank says the ratio of interest payments to disposable incomes has fallen from 15 per cent to 11 per cent and is set to fall further, undoing a half decade's worth of growth.

It notes that petrol prices are down as well.

Household wealth has fallen about 10 per cent in the year, with the biggest falls being in share prices which are down around 50 per cent. By contrast house prices are down just 4 per cent.

But the Bank says that most that most of the share price pain has been felt by wealthiest 20 per cent of households...

...most of whom are still on good wages "and so are likely to have other sources of income to offset the decline in the value of their financial assets".

On the other hand for retirees not receiving benefits the downturn has been dire. The Bank says m any will have lost half their share market wealth, "most likely resulting in a large fall in their available income." Around half of Australia's top 200 companies have cut their dividends, around one quarter of them by more than 50 per cent.

The Bank is unconcerned by talk about Australians running into trouble servicing mortgages, reporting that across the millions of home loans in Australia only 20,000 are more than three months behind. While this is an increase of 7000 on the year before, it remains minuscule by foreign standards.

In only one region of Victoria are there more than 2000 home loans in arrears - the La Trobe Valley, and even there the arrears rate is below 1 per cent.

Separately the Bank's head of economic analysis Anthony Richards told a housing conference he wasn't concerned about a jump in arrears when mortgage rates eventually began to climb.

"Our discussions with banks indicate that they are indeed testing the ability of borrowers to continue servicing their loans if interest rates were to rise," he said.

"No doubt, as at any time, some of the loans being written now will turn sour."

"However, overall, I suspect that the risk of non-performing loans increasing to the extent seen in the United States is low."

The Reserve finds that while mortgage holders have benefited the most from lower interest rates, gaining almost all of the 4 percentage points of rate cuts instigated by the Bank, business borrowers have also benefited, with big businesses enjoying rates 3.7 points lower on average and small businesses rates 2.3 points lower.

Riches amid the Gloom

Real after-tax incomes up 10%

Mortgage burden down 26 per cent

Income tax burden down 3 per cent

House prices down 4 per cent

Share market wealth down 50 per cent

Number of mortgages in arrears: 20,000

Reserve Bank,
March 2009 Financial Stability Review