On the mend
Income rising faster than credit
ONE OF THE REASONS why the residential property market has been under pressure has been the problems posed by household finances. But First National Bank home loans strategist John Loos says indications are that an improvement in household sector credit quality and a decline in mortgage default rates may not be far off.
Loos says the low rate of growth in household credit was exceeded by the rate of growth in nominal household disposable income in first quarter 2009. He says figures show total labour remuneration recorded an 8,9% year-on-year growth rate in that quarter. There’s been a declining trend in the monthly data for total household sector credit outstanding, where the year-on-year growth rate declined to only 5,9% in April. Loos says those figures suggest a further decline in the household debt-to-disposable income ratio.
A declining debt-to-disposable income ratio – along with recent falling interest rates – means the household debt-service ratio is on its way to lower levels.