The addiction to debt has resulted in a major headache amongst homeowners, and high home prices have exacerbated the debt situations in many households.
An analysis from Moody’s Analytics showed that while Australia has not suffered a recession in almost three decades, the ratio of household debt to disposable income has already risen to the highest level in the world — closely tracking 200% of GDP.
Moody’s Analytics economist Katrina Ell said Australians have been compelled to use their savings or take on additional debt to meet their mortgage repayments, especially with the sluggish wage growth.
Some, however, might find themselves stuck, as the ratio of household savings to disposable income has already fallen to its lowest level since 2007 at 2.6%.
"Ongoing weakness may begin to hurt consumer spending as households, especially those that have purchased property recently in Sydney and Melbourne, become increasingly risk-averse,” Ell told The New Daily.
University of Sydney economist and housing expert Peter Phibbs share similar insights, adding that Australia's housing boom has driven household debt to an “unsustainable” rate.
For instance, the high price jumps in Sydney and Melbourne were fuelled by property investors who immediately left the train when high capital growth moderated.
"House prices have been driven up so high that rental yield is now incredibly low. You’re almost better off putting your money in the bank," Phibbs told The New Daily.
The housing crisis has resulted in hurdles which made it harder for younger, lower-income Australians to acquire dwellings of their own. In fact, rate ownerships have declined across age groups, except for those over 65.
Curtin University professor Rachel Ong said the unceasing price appreciation in the past has led some to believe that it will continue rising, forcing them to obtain more debt.
"The problem, of course, is once you’ve taken out that debt you’ve got to service that debt even if asset values fall. Australians have this notion that house prices will continue to go up, and that’s just not true," she said.