AUSTRALIAN households have been hit so hard this year that their financial gains of the past three years have been wiped out, a Reserve Bank report has found.
Despite missing out on the worst of the global financial meltdown, householders are still going backwards.
[Did we miss out on the worst? Perhaps it's a little too early to tell?]
A combination of falling house prices, the plunging sharemarket and high inflation was to blame, the Reserve's Financial Stability Review concluded.
It found the financial downturn in the first half of this year had cut household net worth so it was back to the level of early 2005, as a ratio of disposable income.
In other grim news, new home sales dropped across the nation last month and were particularly bad in Queensland - down 4.7 per cent on the previous month.
But the Reserve review said consumers in other countries were doing much worse.
It also singled out the Australian banking system for special praise, saying it was "weathering the current difficulties much better than many other financial systems".
Mortgage stress creating 'struggle street' in Aust
Mortgage stress is an increasing problem in Australia, according to the Reserve Bank, which says thousands of households across the country are struggling to keep up with mortgage repayments.
The Reserve Bank of Australia (RBA) has pointed the finger of blame at what it describes as "predatory" lending practices by mortgage brokers and an increased appetite for debt among households.
The situation is outlined in the RBA's financial stability review released yesterday, which focused on how Australian banks are weathering the financial storm.
That is the big picture, but another section looks at the real world which is becoming "struggle street" in parts of Australia where mortgage stress is on the rise.
The top six worst affected areas are in western Sydney, but other parts of the country are also suffering from high interest rates and increasing household costs
Financial counsellors say there are more people seeking assistance in Melbourne's north and western suburbs.
In western Sydney, though, the number of loan repayments in default by 90 days or more is three times the national average.
The mayor of western Sydney's Blacktown, Leo Kelly, is witnessing more mortgage stress every day.
"It's very tough for young aspirational families that have moved into the area, obtained their dream home in one of the largest populated local government areas in Australia, with all the facilities and resources they need to live, work and play close to home," he said.
"They've built the dream home and because of the tardy operation and thoughtless activities of the banking system they've now found themselves in extreme difficulty and mortgage stress which is breaking up families.
"You can only see the result of this by driving through the new release areas and seeing the for sale signs up."
Much turns on what happens in the financially stricken United States.
ANZ chief executive Mike Smith says the credit crisis could run another 18 months and as a result it will get more difficult to get a mortgage, personal loan or credit card, in other words credit rationing.
With more pain ahead, Mr Smith says banks and customers must rein in debt.
"People are being cautious, there's no doubt," he said at a meeting of the Australia-Israel Chamber of Commerce in Sydney yesterday.
"Loan demand has reduced a fair amount.
"We are beginning to see an uptick in mortgage defaults.
"We're not seeing it in credit cards which is unusual, I'd have thought it would be the other way round but employment numbers are holding up and that is the key I think, that is the key we have to watch."
In an indication that there is no easing of the credit crisis, the 90 day bank bill rate, which measures what banks charge each other for interbank loans, has had its biggest one day increase in nine years today.
The implications for Australia include continued pressure for the RBA to cut interest rates again next month.
Some economists say the RBA needs to make a 0.5 per cent cut, to ensure something is passed on to mortgage stressed customers.
Because of the higher cost of money, bank costs are going up and they are likely to hold on to some of the reduction.
As the ANZ's Mike Smith said yesterday, he is running a bank, not a welfare state.
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