Savings rate plummets to GFC levels as cost of living challenges continue.
Savings rates are plummeting and have now reached lows not seen for more than 15 years. Rising cost of goods, higher rents and higher mortgage payments are now leading us to dig deep. We are not yet spending more than we earn, as what happened in the Global Financial Crisis (GFC). However one more interest rate rise, energy price rises continuing or even a slight rise in unemployment could tip us into negative territory. All of this has implications for where the Reserve Bank of Australia will next move, and by extension, property.
The pandemic led to us saving more than we ever had. The household saving ratio hit a peak of 23.6 per cent in June 2020. Lockdowns meant there was little to spend money on and government financial support to those directly impacted meant that incomes didn’t fall as much as they otherwise would.
This high savings rate also had a number of impacts on property. Despite Australia seeing negative net migration overseas, rents grew rapidly, increasing by 13 per cent between March 2020 and December 2021. Although difficult to explain at the time, it has since been shown that average household size declined during the time and the number of single person households hit a record high. Rental demand jumped as more people decided they liked living alone more or in smaller households. A trend which is now reversing as rents rise rapidly.
It was also a major driver of house price growth. Higher savings rates meant more to spend on other things when restrictions began to ease and it became apparent that the pandemic would at some point end. Extremely low interest rates and lots of saved cash meant strong demand from buyers, pushing up prices across Australia.
With savings rates now plummeting, what does this mean for property? Interest rates remained on hold in August and markets are currently pricing in 93 per cent chance of another hold in September. With retail trade falling for the third straight quarter, savings rates plummeting and inflation trending down, it is looking more like we are now at peak rates. With more property coming on to the market, this greater certainty about the outlook is likely to make this a much better spring selling season than last year.
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