Signs are accumulating to suggest that Australia’s housing sector upturn is on its last legs. Yet due to the housing sector’s relatively small direct share of the economy, there is a risk that many analysts will underestimate the likely downside impact – which could be significant due to both the sector’s cyclicality and its relatively important multiplier effects.
Household debt in the UK recently hit a record high, surpassing the previous peak reached in September 2008. In the UK household debt alone has stayed stubbornly at the 200% of GDP that it reached in 2007. Almost 90% of this debt is secured against housing. As well as adding to their debts, British households have reduced savings, withdrawing £23 billion in the past year. Total debt remains around 500% of GDP.
If/when interest rates go up it may not bode well for UK households and therefore the wider UK economy. The government’s debt is also increasing and this will continue so along as the deficit is eliminated. The government could get caught with ‘its debts up and its credit ratings down..[and]..may lack the capacity to counter the downturn the way the Americans did.
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