S&P: High household debt levels a vulnerability

S&P has reaffirmed Australia’s AAA credit rating for now, but has warned a number of vulnerabilities exist.

One vulnerability is a housing correction due to the “substantial [household] debt mainly due to elevated property prices” in Australia.

The report indicated “The sustainability of high household debt levels has not been tested in an environment of high unemployment for a long time.”

“Australian house prices, relative to household incomes, are also elevated. While there has not been a build-up of aggregate excess supply, the housing market continues to appear somewhat vulnerable to a downturn, in our view.”

Other concerns include Australia’s increasing reliance on overseas funding and Australia becoming increasingly interlinked with China’s growth and business cycle.

» S&P gets positive on Australia – MacroBusiness, 27th February 2013.
» AAA rating vulnerable to debt, house prices: S&P – The Australian Financial Review, 27th February 2013.
» Economy strong, but housing vulnerable: S&P – The Sydney Morning Herald, 27th February 2013.
» S&P rating safe, but foreign debt a worry – Yahoo 7/aap, 27th February 2013.


  1. “The sustainability of high household debt levels has not been tested in an environment of high unemployment for a ***long time***”

    Have we ever had this level of household debt before? I thought it was unprecedented.

    It’s academic anyway – household debt at the levels we have today is not sustainable. That’s why consumption is down and now jobs are being lost. It doesn’t need testing.

  2. Well said Peter. There doesnt need to be any testing but the funny thing is the MSM keeps reporting how great everything is and the govt as well. The job reports area joke. Work 1 hour and our considered employed. The Australian public really dont know how bad things are getting.

  3. The shit is hitting the fan, nothing is selling for what the owners want, more and more businesses are failing.
    I have real estate agents kissing my arse to turn up to open for inspections. Any offers please sir….
    Reality is hitting home on a individual basis. This will take at least 5 more years of grinding tough times. ie the new norm.
    Welcome to the soft depression. Enjoy the debt slavery owners

    Yoda says “whatever the politicians and mass media tout, it is the opposite”
    Propaganda is alive and well.

  4. @ Peter,
    correct it is unprecedented. On the world level as well. No other country has the private debt that Aussie has.

    Japan is about to implode, (third biggest in the world) and that is from government debt built up over twenty years in an effort to ‘stimulate’ their economy back to life.

    The part of this whole economic debacle that really grates me, is that I said 10 years ago what was beginning to happen was unsustainable. It always was, and always will be.

    What I hadn’t counted on was the lengths that political lobbyists would go to in order to continue to feather their nests in the here and now.

    Here in SA, we hear daily of large-ish companies that have made a fortune over the last 15 years, collapse. Why? Because they fell into the same trap that the Aussie property investor has. The expanded this businesses using debt, removed all capital base from the company and often sold the business to new naive ‘business people’ who thought the world was stable economically.

    Debt is debt. Simple.

    The very same consumers who are now holding off purchases, killing retail and business, are the exact same people that property investors are relying on for increased rents and capital value increases.

    I’ve miscalculated our interest rate cycle here in Aus. I thought that we were on the final leg to ZIRP (zero interest rate policy) but the governments (at a state level) look to be hell bent on kicking off one more housing ‘boom’, of course it will be a fake boom. Then we will see the final leg of ZIRP.

    My old trader friends are right, when it comes to selling assets the market gives you plenty of time. IMHO, any investments property’s since 2007 should have been dumped, yes you might not have made the peak, but here we are in 2013, that’s six years of time to sell. Plenty of time.

    I still and will never have any empathy for greedy landlords who get burnt over the next 10 years.

  5. You still don’t get it?

    “It is the game of the mind” orchestra by media, certain interest-group and to a certain extent the “EXPERTS” to stir public opinion on certain matters.

    Your complaints can do few things:
    1) fall into deaf ears, nothing happened.
    2) fall into wrong ears, stir angry mobs.
    3) promote change.
    4) and if nothing comes through, it creates a sense of hopelessness.

    It is blatanlty obvious that anyone with the right intent and motive would first fix the gauge on the unemployment statistics before even reporting it. Would you drive a car at 200 Km/hr with a faulty speedometer that say 20 but your eyes/neighbourhoods are telling you otherwise?

    This is even worse, being humiliated by public and simply said ” …. too costly …. ” Apparently, all other grants and welfare payments are not that expensive in the first place.

    Screaming, kicking and unproductive debates on the comment line do NOTHING to alleviate the problem (whatever that is).Grow up!

  6. Come on all you negative nellies!
    The sky is not falling! We have been waiting years and years for the crash. Stockmarket is flying and the cycle continues…

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