Decrease in Household Savings
Despite some of the expert economists still believing that household savings are still high, there is enough evidence circulating that national savings has dropped significantly. In the last quarter of 2015 it was down to 7.6 percent which was 9 percent in the previous quarter, which was 10 percent to 12 percent coming out of the global economic downturn. Australia’s saving is down to what it was in 2008, however this is still considered high and a severe housing correction may still be avoided.
The household savings sector is not looking good at this time. This drop in savings may be the effect of the Reserve Bank’s extended interest rate. It can also have been caused by the decline in national income which plays a major role in the economy. Not surprisingly, with the fall of savings and household borrowing, especially mortgages, has increased some 1.8 percent. This dangerous mixture of increase in household loans and a decrease in savings can lead to vulnerability in the finances of Australians. However, it looks like things are still going well, Aussies are still sensible when it comes to personal savings and household savings. It is quite interesting how most households are actually conservative when it comes to saving, saving more than what is justifiable should there be a surge in housing assets. One major concern however is the risk of households becoming taken by the commodity rally and becoming reckless. Borrowing more than they should and investing on commodities that are not sound.
Experts are quite confident that the current behaviour of Australians towards saving and household savings will reduce the chances of devastation if a severe house price correction happens some time soon. Rumours of a housing market crash were overblown and totally unfounded. Why? First off, house prices are not going up, dwelling approvals and auction rates are not moving. Second, strict regulations have deterred the increase in the mortgages of investors. Lastly, with China getting strict on the control of capital outflows foreign money in the housing market may run out soon.
The strengthening of the Australian Dollar is a good indication of positive movement. Household savings are high and it looks like it will remain high despite the uncertainty in the economic prospects of Australia. Uncertainty in easier labour market conditions, slow growth in household revenue among other things. Despite the increasing strength of the Australian Dollar and the low fuel prices the household sector remains uncertain.