THE MIKIVERSE

In the red, mortgage burden soars to $1 trillion

Tim Colebatch
February 27, 2010 - 3:00AM

Australians now owe financial institutions more than $1 trillion in housing mortgages, almost 15 times as much as 20 years ago, new Reserve Bank figures show.

The Reserve revealed that people paying off their own homes now owe banks and other lenders $763 billion - almost 12 times more than the $65 billion owed in January 1990, when figures were first compiled.

Rental investors have increased their mortgage debt even more spectacularly. In January 1990, landlords owed banks $10.5 billion, but by January this year, the figure had swollen more than 30 times over, to $324 billion.

Household disposable income also rose in that period, but it only trebled. In January 1990, home mortgages ate up just 28 per cent of our disposable income. By January 2000, that had ballooned to 66 per cent, and by January this year, it doubled again to 134 per cent.

Even in the past year, despite the global financial crisis, the debt we owe on home mortgages climbed relentlessly, up $83.5 billion to $1087 billion.

Households' willingness to take on greater debt powered much of Australia's economic growth from 1990-2010 but with our households now as indebted as any in the Western world, economists say that will not be repeated.

The Reserve Bank was alarmed at the 13.6 per cent rise in house prices in 2009. Some observers believe it helped prompt the Reserve's decision to raise interest rates three times in a row in the December quarter.

A Reuters survey yesterday found most market economists believe the Reserve will raise rates a fourth time on Tuesday - and they expect a total of four or five rate rises in 2010.

The Reserve has been talking up the economy's prospects in recent days, with governor Glenn Stevens telling MPs last week that Australia's economy will be dominated over the medium term by a resurgence of the resources boom.

The Reuters survey found economists expect the first evidence of this to emerge next week, with GDP expected to jump 0.9 per cent in the December quarter - lifting annual growth to 2.4 per cent.

The Reserve yesterday reported that credit growth in January was the strongest for a year. Seasonally adjusted credit to the private sector rose by $6 billion, or 0.4 per cent, while governments borrowed another $2.6 billion.

Over the past year, private sector credit grew just $14 billion or 0.7 per cent, as business paid back more than it borrowed.

But government debt to financial institutions more than doubled, from $32 billion to $73 billion, as the federal government took on the job of keeping the Australian economy going through the crisis.

This story was found at: http://www.theage.com.au/business/in-the-red-mortgage-burden-soars-to-1-trillion-20100226-p9bs.html