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.

Household Finance Confidence Higher Again

The latest data from the Digital Finance Analytics Household Finance Confidence Index shows a further improvement, with the November score now just above the 100 neutral position at 100.02. This is up from 98.2 in October, and the first time since 2014 we have been above the neutral setting.

fci-nov-2016-summaryThe full effect of recent rate changes and the availability of low-rate fixed mortgages, together with climbing home values in most states, combined,  have driven both home owners, and property investors confidence higher. In fact, for the first time in more than a year, property investors are more confident than owner occupiers. On the other hand, the one-third of households excluded from the property market drifted lower, thanks to higher costs of living and static or falling incomes.

fci-nov-2016-propertyLooking across the states, households in NSW are much more confident, with VIC slightly behind. Households in WA reported a fall in confidence, thanks to poorer employment prospects and falling home prices.

fci-nov-2016-statesjpgOn average households were a little less comfortable with the amount of debt they hold, thanks to expectations that interest rates have passed their low point, and will rise. 27.6% of households were less comfortable, up 3.9% from last month.

fci-nov-2016-debtWe also see a continued fall in real incomes, thanks to rising costs and flat or falling pay. 47.5% said their incomes had fallen, in real terms, in the past year, up 2.3% last month.

fci-nov-2016-income Households reported improved investment incomes from stocks and term deposits. However, appetite for investment property, especially down the east coast remains strong.

On average, younger households were less confident compared with those aged above 50 years.

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.

Household Financial Security Confidence Improves Again

The latest edition of the Digital Finance Household Finance Confidence Index, to end August is released today. Overall the index rose again, from 95.1 to 95.8.

Household costs were relatively contained, whilst many received a boost from the RBA cash rate cut. Some savers were able to take advantage of higher term deposit rates, although others saw their returns on cash deposits falling further. Income growth remained static, but net worth improved thanks to rises in the value of property and shares. Overall the index remains below a neutral setting, but some households in some states are now well into positive territory.

fci-aug-2016 The cash rate cut helped to propel the confidence of those with owner occupied and investment property, while those who are property inactive did not show the same rise. In addition, the more recent positive home price rises bolstered property investors.

fci-aug-2016-ptyThe state variations continue to widen, with households in NSW and VIC well into positive territory, whilst those in WA languish.

fci-aug-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.

 

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.

 

Economic Well-Being of U.S. Households – Fed Survey

The Federal Reserve Board’s latest survey of the financial and economic conditions of American households released Wednesday finds that individuals’ overall perceptions of financial well-being improved modestly between 2013 and 2014 but their optimism about future financial prospects increased significantly.

The 2014 Survey of Household Economics and Decisionmaking, provides new insight into Americans’ economic security, housing and living arrangements, banking and credit access, education and student loan debt, savings behavior, and retirement preparedness. Sixty-five percent of adult respondents consider their families to be either “doing okay” or “living comfortably” financially–an increase of 3 percentage points from the 2013 survey.

Looking forward, households are increasingly optimistic. Twenty-nine percent of survey respondents say they expect their income to be higher in the year following the survey, compared to 21 percent of 2013 respondents.

The survey results reveal a lack of economic preparedness among many adults. Only 53 percent of respondents indicate that they could cover a hypothetical emergency expense costing $400 without selling something or borrowing money. Thirty-one percent of respondents report going without some form of medical care in the past year because they could not afford it.

The outlook for the housing market among surveyed homeowners remained generally positive, as 43 percent believe that their house increased in value over the past year and 39 percent expect home values in their neighborhood to rise in the coming year. Many renters also express an interest in buying but report financial barriers to homeownership, with half of all renters listing an inability to afford a down payment as a reason why they rent rather than own and 31 percent citing an inability to qualify for a mortgage as a reason for renting.

Twenty-three percent of the adult population has some form of education debt, according to the survey. However, this debt is not exclusively student loans. Fourteen percent of those with education debt say that some of that debt is on credit cards. Individuals who did not complete an associate or bachelor’s degree, first generation students, blacks and Hispanics, and those who attended for-profit institutions, are all disproportionately likely to be behind on repaying their student loan debt.

Recognizing the importance of degree completion to many outcomes, the survey explores why some individuals leave college without a degree. Family responsibilities is the most common reason, and was cited by 38 percent of all respondents who dropped out and by just less than half of women younger than 45.

The survey results also suggest that many individuals are not adequately prepared for retirement. Thirty-one percent of non-retirees have no retirement savings or pension, including nearly a quarter of those older than 45. Even among individuals who are saving, fewer than half of adults with self-directed retirement savings are mostly or very confident in their ability to make the right investment decisions when managing their retirement savings.

Consistent with a lack of preparedness for retirement, 38 percent of non-retired respondents say that they either do not plan to retire or plan to keep working as long as possible. Among lower-income respondents, whose household income is less than $40,000 per year, 55 percent plan to keep working as long as possible or never plan to retire.

The survey was conducted on behalf of the Board in October and November 2014. More than 5,800 respondents completed the survey. The report summarizing the survey’s key findings may be found at: http://www.federalreserve.gov/communitydev/shed.htm

DFA Household Finance Confidence Index Falls Again In April

The latest DFA Household Finance Confidence Index (FCI) to end April 2015, showed a further slight fall, from 91.97 in March to 91.87 in April, and continues to track below the long term neutral position.

FSI-Index-Apr2015The 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.

Looking at the drivers of the index, for all Australia, we see that households are a little more confident about their employment status (+0.28%), but there was overall little change (63.2%). We noted a rotation in confidence towards NSW and away from WA, reflecting the impact of the mining boom coming off.

FSI-Jobs-Apr2015Looking at confidence with respect to savings, we find that whilst about half of the households scored about the same, there was a further deterioration in those more comfortable (-0.3%) and a rise in those less comfortable (+0.43%). The main factors which are driving this related to ever lower deposit interest rates, and the need to tap into savings as income growth stalls. Males tend to be more confident than Females.

FSI-Savings-Apr2015Turning to debt, we see that households are less comfortable about the the amount of debt they hold (-0.9%), this is explained by a growth in the absolute level of debt many households have, and concerns that cash flow is under pressure making it more difficult to repay on time. Lower interest rates have not translated into lower debt costs as many hold balances in credit cards where interest rates remain high.

FSI-Debt-Apr2015Turning to real income, some households have seen their incomes rise and were more comfortable (+1.5%), but in contrast more are also less comfortable, as their incomes were eroded in real terms (+1.4%), so as a result, the number who stayed the same fell by 2.2% to 55.8%. Those in part-time work tended to be less confident.

FSI-Income-Apr2015Households whose costs of living rose were up by 1.6% to 37.2%, driven by higher child care costs, garage repair bills, some foods and council rates. 57% of households saw no major change and 4% saw their cost fall, thanks to reductions in fuel costs and some foods. The falling AU$ also had some impact on the results.

FSI-CostsOfLiving-Apr2105Finally, we looked at net worth, 60% of households think their net worth has improved, thanks to higher house prices and paying forward on mortgage repayments, whilst 14% believe their net worth fell. Many of these households live in rented accommodation, and have substantial debts, and relatively few assets. Those not borrowing, but holding substantial savings balances were more likely to see their net worth reduced.

FSI-NetWorthApr2015This data is averaged across the states, though we note some significant differences between WA (overall confidence lower) and NSW (overall confidence higher), thanks mainly to differential movements in house prices and employment prospects.

Note, these results were collated before the last RBA interest rate cut, and the budget speech. We will examine the impact of these factors on households next month.

Latest Edition Of The Property Imperative Released Today

The Property Imperative, Fourth Edition, published April 2015 is available free on request. This report which summarises the key findings for our research into one easy to read publication. We continue to explore some of the factors in play in the Australian residential property market by looking at the activities of different household groups using our recent primary research, customer segmentation and other available data. Specifically we look at the property investment juggernaut and how we are becoming a nation of  property speculators. It contains:

  • results from the DFA Household Survey to end March 2015
  • a focus on first time buyer behaviour and overseas property investors
  • an update of the DFA Household Finance Confidence Index

PropertyImperativeLargeGo here to request a copy.

From the introduction:

This report is published twice each year, drawing data from our ongoing consumer surveys and blog. This edition dates from April 2015.

The Australian Residential Property market is valued at over $5.4 trillion and includes houses, semi-detached dwellings, townhouses, terrace houses, flats, units and apartments. In the past 10 years the total value has more than doubled. It is one of the most significant elements driving the economy, and as a result it is influenced by state and federal policy makers, the Reserve Bank, Banking Competition and Regulation and other factors. Residential Property is therefore in the cross-hairs of many players who wish to influence the economic fiscal and social outcomes of Australia. The Reserve Bank (RBA) has recently highlighted their concerns about potential excesses in the housing market is on their mind, when considering future interest rate cuts.

According to the Reserve Bank (RBA), as at February 2015, total housing loans were a record $1.43 trillion , with investment lending now at a record 34.4%, and representing more than half of all loans made last month. There were more than 5.2 million housing loans outstanding with an average balance of about $241,000. Approximately two-thirds of total loans were for owner-occupied housing, while one-third was for investment purposes. 36.9% of new loans issued were interest-only loans. This report will explore some of the factors in play in the Australian Residential Property market. We will begin by describing the current state of the market by looking at the activities of different household groups leveraging recent primary research and other available data. We also, in this edition, feature recent research into first time buyers and foreign investors; and look at household finance confidence.

DFA Household Finance Confidence Index Fell In February

Using data from our household surveys, we have updated our household finance confidence index to end February. We compare the confidence of households now, compared with 12 months ago. The overall index, which is still below a neutral setting, fell slightly again in the month,  despite the RBA rate cut of 25 basis points in February. Households are less confident about their financial health than anytime since December 2012. 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.

FSI-Index-Feb2015Looking at the composite elements in the index, with regards to savings, those comfortable with what they have saved, fell by 1.7%, reflecting mainly lower deposit rates, especially amongst females. Those less comfortable rose a little (0.6%). Those in part-time work had similar ratings to those households unemployed, in contrast to those full time employed. In these charts, the blue is data 12 months to January, and orange is 12 months to February.

FSI-Savings-Feb2015Those households who think their real incomes have grown, fell by 1.8% in the month, whilst those households whose real incomes fell, rose by 1.3%.

FSI-Income-Feb2015Looking at household debt, households who were comfortable with their level of debt fell by 1.1%, though we found males more comfortable with their debt position than females. A slightly higher proportion were as comfortable as 12 months ago.

FSI-Debt-Feb2015Those whose costs of living stablised over the last 12 months rose by 0.5% to 59.3%, helped by lower interest rates, petrol and electricity bills.

FSI-Costs-Feb2015More than half of the households said their net worth had increased over the past year, up by 1.1% for last month. Less households had seen a fall in net worth (down 1.85%)

FSI-Net-Worth-Feb2015Finally a slightly smaller number of households thought their jobs were as secure as a year ago, (down 1.1% to 61.6%), those who felt their jobs were more secure fell (down 0.9%), whilst those felling less secure rose a little (up 0.3%).

FSI-Job-Feb2015Our take is that household financial confidence is still in the doldrums, despite ultra low interest rates and sky high property prices. Their future spending patterns will remain conservative, and we will not see a sudden change in consumption patterns anytime soon. We will update the index again next month.

DFA’s New Household Finance Confidence Index Falls

DFA has just launched a New Household Finance Confidence Index, and so we are going to explain how the index works, and also discuss the initial results. This brief video covers both.

DFA has been surveying households on aspects of their finances for many years. 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. We are using this data to create a monthly index – THE HOUSEHOLD FINANCE CONFIDENCE INDEX. 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.

The overall result for Australian households shows a gradual but significant fall in confidence over the past few months. Whilst a score of 100 would be a neutral result, the latest data to January 2015 came in at only 92.4. So on average, Household Finance Confidence Is Falling.

FCI-Index-Jan-2015
This initially seems quite surprising, because nearly 58 percent of households said their net worth had improved over the past year, thanks to significant rises in house prices. For example in Sydney prices rose on average 12 per cent. In addition, superannuation is growing, and the stock market has been performing quite well. However, a quarter of households were less comfortable with their level of debt compared with last year, reflecting larger mortgages and higher levels of credit card debt.

FCI-Debt-Jan-2015
One third said their real incomes have dropped, partly because overtime is being cut, and partly because average pay increases are lower than inflation has been. Many households have had no increases for several years.

FCI-Income-Jan-2015
In addition, more than 35 percent said their costs of living had risen. Despite recent falls in fuel prices at the bowser, the costs of child care, school fees, electricity and gas, and food more than offset any gains.

FCI-Costs-Jan-2015
Looking at savings, about 30 per cent of households were less comfortable with their level of savings compared with last year.Many are dipping into savings to make ends meet, and others are seeing overall income dropping because of falling interest rates.

FCI-Savings-Jan-2015
Finally, nearly one fifth were less confident of their job security than a year ago.

FCI-Job-Security-Jan-2015
Now, these are national results. Whilst the survey is completed at a segment level, and by each state, this more granular data is not available in this post.

We will be updating the confidence index each month, and will post the results on the DFA blog. You can of course subscribe to receive updates.