Household Finance Security Index Higher Again In February

We have published the February 2017 edition of the Digital Finance Analytics Household Finance Confidence index (FCI) today, which shows a further small rise from the January 102.7 to 103.4. This is above the long term neutral setting, and after a significant dip in the past couple of years, the FCI is maintaining positive momentum.

However, the positive boost in predominately centered on momentum in the property market, with both owner occupied and investment property holders in positive territory, whilst those excluded from the property market, including renters and those living with family or friend get none of the upside, so their financial security is degrading further. This highlights the risks if the property market momentum were to reverse, and the bind that regulators face at the moment – do you keep the current settings and allow the market to continue to run, or tighten and risk reversing household sentiment and thus spending?

The state by state picture shows how uneven the confidence is, with households in the eastern states significantly more positive that in WA or SA.  WA grinds down, thanks to the pressure on the economy there, falling home prices and flat to falling incomes. Will the election result today make a difference?

Finally, here is the scorecard, which shows that real income in under pressure (up 1%), costs of living are rising (up 1%), concerns about debt levels are up a little (thanks to recent rate increases) but net worth is being bolstered by strong home price growth and rising stock markets.  The property sector is firmly linked to household confidence, and vice-versa.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

Consumers won’t react the same to higher interest rates

From The Conversation.

The Reserve Bank today kept interest rates at a record low of 1.5%. Such low rates create economic uncertainty – and if Australia’s historical GDP growth is anything to go by, consumers face more uncertainty than the bottoming out of interest rates would usually suggest.

This is because high house prices lead home-owners to feel wealthy, yet the economy as a whole does not convey a message of wealth to all consumers.

Boom and bust come and go, and sometimes you can be forgiven for feeling economic déjà vu. But how might Australians react to record low rates this time around? Business moves in cycles over time, so economists sometimes look to history as a guide to what might happen next.

A flattening out of interest rates can mean many possibilities for consumers and businesses. Historical GDP growth rates would indicate that the business cycle is at the same stage as in 2011. But what this means for consumers depends on how the other economic “stars” align. The indicators from 2011 are able to provide a model of how consumers may react over the coming years.

Does 2011 provide a model?

The relationship between interest rates and unemployment has been of interest since target interest rates were introduced in 1990.

The rise in unemployment from 4% to 6% between July 2008 and May 2009 occurred at the same time as the Reserve Bank rapidly slashed the target interest rates.

However, with the Reserve Bank now unlikely to reduce interest rates any further, the impact on unemployment and other pointers for consumer behaviour may be different this time compared to 2011.

To predict consumer behaviour in the current uncertain conditions, the most appropriate method would be to consider past situations where GDP has gone up, and reflect on changes to key consumer indicators.

Based on Australia’s current GDP growth rates, and those of the last few decades, we are most likely at the “February 2011” stage of the business cycle – when growth was at 1.9%.

Based on the business cycle method of anticipating future consumer indicators, we would expect the trend to continue. Consumers would save the same or less of their income. And consumer sentiment would remain flat.

However, with property prices at all-time highs in capital cities, it is possible this will counteract rising interest rates when it comes to consumer expectations because there are conflicting messages. On the one hand, consumers feel wealthy because of property prices. However, they are expecting their mortgage repayments to increase when interest rates start to tick up.

In this environment it is expected that unemployment remains steady, as it has since 2009, with the sharemarket remaining flat. It is expected that as the sharemarket remains flat (or modestly increases) across developed countries, the price of gold continues to rise.

We can make these sorts of predictions, if 2011 is a guide to what will happen in the coming years.

ASX

But using 2011 as a benchmark to help predict future trends relies on the basic academic assumption that the points of reference (2011 and 2017) are identical. The world of 2011 was vastly different from the world today – it was almost naively uncomplicated.

Further dampening effects?

The differences between 2011 and 2017 will likely result in further dampening effects on the economic recovery. One of the major potential dampeners is Australia’s relatively high level of government debt.

The reduction in government debt in 2007 occurred almost simultaneously with the global financial crisis, higher consumer saving rates and a steady decline in GDP growth each quarter.

Hence, core economic fundamentals (such as how cutting government spending when the economy is already shaky will likely result in a greater negative GDP impact than when the economy is strong) deem that if the current government takes steps to reduce debt, this could have further dampening effects on the economy. This is despite a bottoming out of interest rates, which indicates the economy is projected to be on the way up.

Today’s world poses many challenges to forecasting how consumers will behave. One of the primary issues is high levels of debt (both for consumption and for property), which means a rise in interest rates will directly impact Australians. However, high property markets give consumers a feeling of wealth, despite the extreme lack of diversification across asset classes, and property that is hard to sell.

These competing forces mean consumers are likely to view formal government announcements with more scrutiny. As statements are made about improving economic prospects, individual consumers are feeling financial strain.

Combine these forces with increasing market complexity, product advances, geopolitical issues and climate change, and a certain level of unease is weighing on Australian minds, which goes over and above the likely increase in mortgage repayments.

A lot has changed since 2011

Technology disruptions are likely to further reduce trust in institutions, particularly banks, but may ultimately give consumers a greater feeling of empowerment and control.

In 2011, technological financial disruption was just a sparkle in Bitcoin’s eye. Now, technological disruption covers every sector imaginable. Many consider the future economy will be the collaborative economy.

The collaborative economy is one in which consumers and businesses share their resources (for a fee). This increases efficiency and saves cost to the end consumer.

For example, AirBnB (the largest accommodation provider in the world, which owns no accommodation) connects people who have extra space with travellers who are seeking an authentic, low-cost experience while travelling.

If the shift toward the collaborative economy continues, large institutions – particularly banks – will find it more difficult to make the significant profits they are used to.

Since 2011, consumers across the world have shifted to more community-based banking systems and have lent directly to others to achieve higher interest rates than bank deposits – particularly in a low-interest-rate environment. This trend is likely to continue.

Coupled with decreasing trust in institutions, it makes it unlikely that the predicted trends will be identical to those in 2011.

Author: Lecturer in Accounting, Finance and Economics, Griffith University

Household Finance Confidence Slips After Christmas Binge

We have released the latest edition of the Digital Finance Analytics Household Finance Confidence Index, to end January 2017 today, which is a barometer of households attitudes towards their finances, derived from our rolling household surveys.

The aggregate index fell slightly from 103.2 in December to 102.68 during January, but is still sitting above a neutral measure of 100, and the trend remains positive. However there are a number of significant variations within the index as we look across states and household segments. These variations are important

First, the state scores are wider now than they have ever been, with households in NSW the most positive, at 110, whilst households in WA slip further to 81. Households in VIC and SA also slipped a little, whilst households in QLD were a little more positive.

The performance of the property market is the key determinate of the outcomes of household finance confidence, with those holding investment property slightly more positive than owner occupied property owners, whilst those who are renting, or living with family or friends are significantly less positive. Whilst some mortgage holders have received or expect to see a lift in their mortgage rate, this is offset by strong capital growth in recent months. The NSW property holders, especially in greater Sydney are by far the most positive. Renters in regional WA, where employment prospects are weaker, are the least positive.

Looking in detail at the drivers of the index, we see a rise by 1% of households who are felling less secure about their employment prospects – especially those in part-time jobs – and more are saying they are under employed.

In terms of the debt burden, there was a 4% rise in those less comfortable about the debt they hold, thanks to rising mortgages, the Christmas spending binge and higher mortgage rates.

More household are saying their real incomes have fallen, up 3%, whilst those who say their costs of living have risen was up 8%.

To offset these negative indicators however, some households reported better returns from term deposits and shares, as well as a significant boost to capital values on their property. Those who said their net worth had risen stood at 64%, up 5% from last month.  The property sector is firmly linked to household confidence, and vice-versa.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

Job issues a drag on Aussie households

Income cuts, record-high job insecurity and high rates of underemployment are putting stress on households’ financial comfort, according to ME’s latest Household Financial Comfort Report.

The Report shows a marked long-term deterioration in Australian households’ ‘comfort with income’, which remains at its lowest level since the Report began in 2011, at 5.55 out of 10.


Record low income gains highlight widening gap between rich and poor

ME consulting economist and Report co-author, Jeff Oughton, said the reasons for income worries were clear.

“Only 32% of households reported ‘income gains’ over the past year – one of the lowest levels since the first survey in 2011 and down from the corresponding figure of 38% 12 months ago,” said Oughton.

Oughton said income gains were more likely to be reported by those with higher incomes and wealthier Australians.

Almost one in two (or 46%) of households with incomes over $100,000 reported ‘income gains’, compared to 17% of households earning under $40,000. Conversely, 41% of households earning less than $40,000 reported income losses, compared to only 13% of those earning over $100,000.

“The rich appear to be getting richer, while the rest of Australia is struggling – there’s a divide across households,” said Oughton.

Households earning an annual income above $200,000 reported very high overall financial comfort of 7.10 out of 10 in December, compared with ME’s overall household financial comfort index (5.41 out of 10).

“We’re seeing a shift in the composition of jobs as the economy moves away from mining and manufacturing with many employees leaving longer-term jobs and taking up lower-paying less-permanent jobs, which is having a negative impact on their financial comfort,” said Oughton.

ABS data shows wage growth at historical lows over the past two years to the September quarter. ME’s Report supports this, highlighting low wage growth continued in the whole of 2016 and is causing financial discomfort for many households, exacerbated by job insecurity and underemployment.”


Job insecurity and underemployment

In addition to income cuts, high levels of underemployment and record high ‘job insecurity’ were also contributing to households’ historically low comfort with income.

“One in three Australian households (34%) reported ‘job insecurity’ – a record high and an increase of 9 points over the year to December 2016,” said Oughton.

“Furthermore, 56% of households felt that they would ‘struggle to find a new job within two months if they became unemployed’, an increase of 3 points over the past year, while only 37% said it would be ‘easy to find a job’, down 3 points in the past 12 months.”

“Despite Australia’s relatively low official unemployment rate of 5.8% in December 2016, ME’s Report shows 60% of part-time employees would like to ‘increase the hours they work’ and 70% of casual workers want to ‘change from casual to permanent employment’,” said Oughton.


Tighter purse strings

The proportion of households saving increased 3 points to 51%, with these households saving an extra $58 each month on average.

“Arguably reflecting tougher labour market conditions outweighing the impact of rising (net) wealth, households tightened their purse strings over the six months to December, saving more where they could and overspending less.

“It’s an increased conservatism that will be contributing to a drag on growth as Australia’s economic transition continues,” said Oughton.

Meanwhile, those households ‘spending more than they earn each month’ (9% of households) also cut back, reducing their overspending by an average of $55 less each month. Consistent with these findings, overall household comfort with cash savings rose by 3% to 4.94 out of 10 in the latest Report.


Other findings:

‘Single parents’ doing it the toughest: ‘Single parents’ reported the lowest levels of financial comfort the Report has seen (4.34 out of 10) – a 3% decrease in the six months to December 2016.

‘Gen X’ down in the dumps: ‘Gen X’s’ financial comfort decreased by 5% to the lowest level on record (4.92 out of 10), reflecting lower comfort across all key drivers with the biggest falls in comfort around debt (down 8% to 5.21) and incomes (down 6% to 5.19).

‘Retirees’’ financial comfort on the up: ‘Retirees’’ household financial comfort rose by 8% to 6.23 out of 10. Likely due to current majority of retirees not being faced with pending superannuation and pension changes, and having ridden the continued wave of growth in the property market and renewed strength in equity markets. Retirees’ ‘comfort with both their investments and wealth’ rose by 11% in the last six months, and their ‘ability to cope with a financial emergency’ is the highest of all household cohorts.

WA rebounds, at least temporarily: Financial comfort in WA increased by 6% to 5.34 out of 10, reversing the record low results seen in the previous Report (5.02 out of 10). Many key drivers of financial comfort rose, with double-digit gains in ‘investments’ and ‘cash savings’.

South Australians feeling the pinch: South Australians experienced an 8% decrease in financial comfort during the six months to December 2016. Many key drivers of financial comfort fell, with recent adverse weather and energy disruptions potentially weighing, at least temporarily, negatively on household comfort.

Positive Property News Supports Household Finance Confidence

The latest Digital Finance Analytics Household Finance Confidence Index, to end December is released today. Overall household confidence is buoyant, and above the neutral setting. Sitting at 103.2, it is up from 100.02 in November.

The property “fairy” has been generous in that property is the key to the index at the moment, with positive news on home price rises, and the effect of the low interest rates following the last RBA cash rate cut flowing through. Home owners with an investment property have now overtaken the confidence score of owner occupied property holders, but both are higher. Those households who are not property active however continue to languish.

We see significant state variations, with those in NSW and VIC most confident, whilst those in WA, although slightly higher, is significantly off the pace.  The impact of changes to the first owner grant there will not flow through into the results for some time to come.

The impact of positive property news has swamped a couple of the negative indicators. For example, more households are saying their costs of living have risen in the past 12 months.

In addition, real incomes, after adjusting for inflation are static or falling. Very few have had any pay rises above inflation, and many none at all.

So, it seems the future of household confidence is joined at the hip with the future of property. In the light of our recent mortgage default modelling, in a rising interest rate market, this may be a concern as we progress through 2017. But at the moment, households are having a party!

By way of background, these results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

Booming consumer confidence supporting rate rise

From Mortgage Professional Australia.

Aussies enter 2017 on a four month high amid increasing expectations that the RBA will raise the cash rate 

Consumer confidence is at its highest level since August, ANZ-Roy Morgan’s Consumer Confidence index has found. The index for the week ending January 8th had a score of 120.1, up 4% compared to 2016’s average confidence and significantly above the long term average of 116.5 since 2010.

Australians are feeling more positive than before about their family finances and the state of the Australian economy over the next five years, and have gone from a negative to a positive outlook for the economy in the next 12 months. Significantly for brokers, the level of confidence in reply to the question ‘do you think now is a good time – or a bad time – for people to buy major household items?” shot up from +28 to +41.

Consumer confidence is also important because it is one of the measures the Reserve Bank uses to keep track of the economy and set interest rates. Referring to both the Roy Morgan index and encouraging figures for retail trade, CommSec analyst Savanth Sebastian commented that “a number of indicators make rate cuts look less likely than even six months ago.” With inflation likely to rise in 2017, Sebastian argued that “it is unlikely that the Reserve Bank will be looking to cut interest rates further.”

Banks have already raised their fixed rates in expectation of the RBA eventually raising rates, for over 200 loans, according to research by CANSTAR and the AFR. Consumer demand for fixed rates has also increased – now comprising 22% of all loans written at Mortgage Choice – as consumers expect variable rates to increase. The earliest possible opportunity for a cash rate rise and subsequent changes in variable rates would be 2017’s first RBA monetary policy board meeting on Tuesday 7th February.

Household Financial Confidence Higher as Rates Fall

We release the October edition of the Digital Finance Analytics Household Finance Confidence Index (FCI) today. Overall average confidence is up again, as a direct response to the RBA rate cut, and property owning households are the more confident. The index reached 98.2, up from 97.1 last month, and is trending towards the long term neutral setting. Property Investors and Households with Owner Occupied property continue to move above the neutral setting, thanks to continued capital appreciation (in most centres) and lower mortgage rates and some rises in term deposit rates.  Those without property interests drag the average down, highlighting again how important property is to household finances.

fci-oct-16On a state basis, NSW and VIC are most positive. WA the least positive, reflecting falls in home prices, rising rental vacancies and less appetite for property.

fci-oct-16-states Household income, in real terms remain in the doldrums, putting more pressure on those with larger mortgages.

fci-oct-16-incomeBy way of background, these results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

Household Financial Confidence Improves, If You Hold Property

The latest edition of the Digital Finance Analytics Household Finance Confidence Index (FCI) to end September 2016 is released today. Using data from our household surveys we examine how households regard their overall financial position. The composite index rose from 95.8 in August to 97.2 in September, the highest reading for a couple of years, though still just below its 100 neutral setting. It is dragged down by households excluded from the property market.

fci-sept-2016This average national score masks some important differences. First, the score varies by state. Households in NSW and VIC are now above the neutral setting, thanks to improving job prospects, rising home prices, and lower interest rates on mortgages. With stock markets on the rise, the only negative indicator in these states is low returns on bank savings (which is encouraging more to look at investment property) and high debt. Costs of living, though rising, seem largely manageable.

There is a different story in WA and SA, where unemployment is a higher risk, property prices are muted, and debt remains high. QLD sits between the two extremes, with households in and around Brisbane mirroring the results in NSW, whilst regional QLD is mirroring WA; a state divided. In these states, costs of living are more of a concern.

fci-sept-2016-statesLooking at the results by property owning segmentation, owner occupied home owners are the most positive about their financial position, thanks to the increasing wealth effect of rising home prices, in an ultra-low interest rate environment. Property investors are increasingly confident, thanks to better than expected capital values, lower interest rates and no disruption to capital gains or negative gearing policy. The only shadow on their horizon is flat rental incomes and poor tenant behaviour.

However, one quarter of households are property inactive – mainly in rental accommodation, or living with friends or family. They are excluded from the wealth effect of property. With incomes static, the costs of rent, alongside other costs of living, kept their scores much lower (and indeed take the national average below its neutral setting). Take property inactive households out of the equation, and the remaining groups would be well above the neutral setting. Your property owning status determines your wealth footprint – no wonder people aspire to get on the property ladder, at almost any cost!

fci-sept-2016-pty Finally, we look at one of the specific dimensions in the survey. This month we look at debt exposure. Two thirds of borrowing households are as comfortable with the debts they hold as a year ago (bigger debts, but lower interest rates). Around 7% are more comfortable than a year ago, and 24% less comfortable, driven by finding it more difficult to service their debts in a low income growth, high cost growth environment. Remember, interest rates are very low at the moment, so this level of debt pressure remains a concern. If rates were to rise, pressure on these households would rise, fast.

fci-sept-2016-debtBy way of background, these results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

Household Cash Flows and Monetary Policy

The RBA released the September 2016 edition of the Bulletin today. The article “The Household Cash Flow Channel of Monetary Policy by Helen Hughson, Gianni La Cava, Paul Ryan and Penelope Smith is interesting, but possibly flawed.

It looks at the impact of households when the cash policy rate is changed. Lower interest rates can encourage households to save less and bring forward consumption from the future to the present (the inter-temporal substitution channel).

Lower interest rates can also lift asset prices, such as housing prices, and the resulting increase in household wealth may encourage households to spend more (the wealth channel). Additionally, lower interest rates reduce the required repayments of borrowing households with variable-rate debt, resulting in higher cash flows and potentially more spending, particularly for households that are constrained by the amount of cash they have available. At the same time, lower interest rates can reduce the interest earnings of lending households, which may, in turn, lead to lower cash flows and less spending for these households. These last two channels together are typically referred to as ‘the household cash flow channel’.

The analysis in this article focuses on a fairly narrow definition of the cash flow channel. It examines the direct effects of interest rates on interest income and expenses, but abstracts from monetary policy changes that have an indirect cash flow effect by influencing other sources of income, such as labour or business income.

rba-sep-2016-1Household disposable income, or cash flow, comprises wages and salaries, property income (including interest paid on deposits) and transfers, less taxes and interest payments on debt. The household sector in Australia holds more interest bearing debt than interest earning assets. Indeed, households have increased their debt holdings at a rapid pace since the early 1990s, mainly due to an increase in mortgage debt. For the household sector as a whole, the level of household debt now exceeds the level of directly held interest earning deposits by a significant margin. However, since the mid 2000s, slower growth in household debt and increases in interest-earning deposit balances (including balances held in mortgage offset accounts) has led to a decline in net interest bearing debt. This means that the household sector is a net payer of interest. Household net interest payments increased through the 1990s and early 2000s, mainly reflecting the rise in net household debt, but trended down from 2007 as interest rates and net debt declined.

The data shown above do not account for interest earning assets held in managed superannuation accounts, which have increased substantially since the early 1990s. The majority of these assets cannot be accessed until retirement.

This article finds evidence for both the borrower and lender cash flow channels, but the borrower channel is estimated to be the stronger channel of monetary transmission. One reason for this is that while there are roughly similar shares of borrower and lender households in the Australian economy, the average borrower holds two to three times as much net debt as the average lender holds in net liquid assets. Another reason is that the sensitivity of spending to changes in interest-sensitive cash flow is estimated to be larger for borrowers than for lenders based on statistical analysis using household-level data.

Overall, the estimates suggest that the cash flow channel is an important channel of monetary transmission; the central estimates indicate that lowering the cash rate by 100 basis points is associated with an increase in aggregate household income of around 0.9 per cent, which would, in turn, increase household expenditure by about 0.1 to 0.2 per cent through the cash flow channel.

We have a couple of issues with their analysis. First, recent events have shown that when the cash rate is cut, the benefit is not necessarily passed through to households, thanks to weak competition in the banking sector. When it is, the benefit is often not equally shared between borrowers and savers, and not all savers benefit equally. In fact, looking at the trends in recent years, savers have been taken to the cleaners, as banks repair and protect their margins. So benefits are overstated.

The second issue is households will be impacted by the confidence surrounding a rate move. If they become less confident, they will be less likely to spend, preferring to save for later. So a rate cut often lowers household spending – this is one of the significant reversals we have seen recently – and central banks are still trying to get to grips with the implications. The link between low interest rates and household spending, yet alone broader economic growth appears broken.

So, whilst the article is a good attempt, we think it overstates the benefits of cash rate cuts in the current cycle.

Household Finance Confidence Holds

The latest Digital Finance Analytics Household Finance Confidence index, for July 2016 is released today. The index, which measures households’ attitudes to their finances, stands at 95.17, down a little from last month from 95.21, and below the long term average of 100. However, there are wide variations among households.

FCI-Jul-2016--IndexHouseholds with savings in bank deposits were more confident, thanks to small, but significant uplifts in term deposit rates. We expect to see this continue, following the August RBA rate cut, and banks’ repricing of term deposits.

One factor of note is the ongoing fall in households who recorded real income growth in the past year. This is a drag on confidence, and spending. The small cut in mortgage interest rates will not help very much.

FCI-July-2016---IncomeThere are significant differences by property segment, with owner occupied households the most confident, thanks to falling interest rates and continued property price rises. Property investors also recorded  a rise, thanks to rising property values, though trimmed by low rental income rises, and mortgage pricing. Property inactive households were the least confident, not least because with incomes flat many are finding it tough to make rental payments on time. They are not able to particulate in the wealth effect of holding property.

FCI-Jul-2016---PtyThere are also variations across selected states. Households in NSW and VIC are the more confident, thanks to relatively good employment prospects, and stable living costs.  Households in WA and SA are more concerned, with issues such an employment and living costs in mind.

FCI-Jul-2016-StatesBy way of background, these results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.