The results from the latest Digital Finance Analytics Household Finance Confidence Index to end May 2017 is released today, and shows a lower overall score of 100.6, down from 101.5 last month. This is firmly in the neutral zone, but households with mortgages are feeling the pinch and the index is set to go lower in months ahead.
Both property investors and owner occupiers are more concerned about rising mortgage interest rates, and potentially falling property prices. There was less change in households who are property inactive, which shows how the dynamics of property is directly influencing confidence, but this group has a lower level of confidence to start with.
The biggest slide was in NSW, where the overall score is still the highest across the states, but is turning lower. Talk of lower prices, is hitting confidence. WA confidence is rising a little, but from a low baseline and there were small rises in QLD and SA.
Looking at the scorecard which drives the index, we see households have become a little more concerned about future job prospects, are less comfortable with savings returns, but significantly more concerned about the debt burden they are carrying in the context of falling real incomes, whilst costs of living continue to spiral higher. This despite net worth still rising for many.
Sentiment in the property sector is clearly a major influence on how households are felling about their finances, but the real dampening force is falling real incomes. This is unlikely to correct any time soon, so we expect continued weakness in the index as we go into winter.
By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 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.