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Chart Of The Day: Australia's Record Household Debt Is A Ticking Time Bomb

The Australian household debt to income ratio has ballooned to shocking levels over the past three decades as Sydney is ranked as one of the most overvalued cities in the world.

According to the Daily Mail Australia, credit card bills, home mortgages, and personal loans now account for 189 percent of an average Australian household income, compared with just 60 percent in 1988, as 

, Head of Research of Topdown Charts, demonstrates that record high household debt is a ticking time bomb:

The average Australian credit card bill is roughly $3,272.70 as average income earners spend at least $2,000 a month on mortgage repayments, which has contributed to the affordability crisis, said the Daily Mail Australia. The average Australian holds about a $400,000 mortgage after they put down 20 percent deposit for a $500,000 property. The paper notes that the loan would barely buy a one-bedroom unit in most outer suburbs, as full-time workers take in about $82,000 salary per annum and spend an alarming 40 percent on mortgage repayments.

With household debt at crisis levels, CoreLogic said Australian home prices experienced their sharpest monthly drops in July since late 2011 as declines gathered momentum in Sydney and Melbourne (Sydney and Melbourne cover about 60 percent of Australia’s housing market by value and 40 percent by number). Nationally, the index of home prices dropped .60 percent in July from June, leading to an annual fall of 1.6 percent.

The brunt of the slowdown has been most significant in Sydney, where values were lower 5.4 percent in the year to July, while Melbourne slid 0.5 percent. Home price declines were the sharpest in expensive regions, while the affordable housing segment of the market experienced less stress.

With Sydney and Melbourne home prices fading from their 2017 peaks, CommSec economist Ryan Felsman said millennials are struggling to service their mortgage payments.

“Household debt is elevated particularly in those two cities because of the fact that home prices rose so significantly over the last decade,” he said.

Wage stagnation and elevated home prices have turned into the perfect storm that will bring forward a housing crisis.

AMP Capital chief economist Shane Oliver suggests, otherwise, he believes a housing crash in Sydney and Melbourne is unlikely as long as high immigration fuels demand.

“That’s why prices haven’t come back down,” he told Daily Mail Australia today.

Oliver did mention that Australian home prices were likely to fall by double-digit percentages but limited his forecast to about 15 percent, in the coming years.

“The best possible scenario for young people is that prices come off say another 10 percent and then we spend many years where prices just go sideways and wages eventually catch up,” he said.

Australian Bureau of Statistics lending finance data published this month showed the average credit card debts had risen by $21.30 to a five-year high of $3,272.70 in June.

Australia has transitioned from the lowest household debt-to-income ratio to the highest in the world, in just three decades.

John Adams, chief economist at As Good as Gold Australia, teamed up with Martin North from Digital Finance Analytics in the below video, which discusses Australia’s household debt dynamics in greater detail: