The only way is up... yeah?!
  • Expect real household disposable income and savings to get worse in the first half of 2024, before tax cuts deliver some relief from July.
  • Share markets could be a rough ride in the first half before shoring up in the second; we've already seen a 'Santa rally' to send the ASX 200 over 7,500 points.
  • On the plus side it looks like mortgage rates are at or near the top, but rate cuts in the back half of 2024 could mean waving bye-bye to top deposit rates.

See Also: Property market outlook for 2024

See Also: Economy and inflation outlook for 2024

Household budgets

The household budget has been stretched in 2023, and could worsen in 2024; the ABS reported the household savings ratio was just 1.1% in the September 2023 quarter, the worst since December 2007.

We're also in a per-capita recession, and real household disposable incomes fell 5.1% in 2023 - the worst among OECD countries.

Real household disposable income contracted 1.7% over the September quarter and is down 8.3% from the peak in the third quarter of 2021.

Spending also took a weaker-than-expected turn in the fourth quarter of 2023 and is expected to continue in 2024.

The tax take from the government has increased by nearly half in just two years; income taxes paid by Australian households increased from $65.1 billion in quarter-three of 2021, to $90.9 billion in quarter-three 2023.

In 2024 this could dip further, and the savings ratio could even turn negative - the first time in about 20 years. Scheduled tax cuts coming mid-year could provide some relief and money into the pockets of households at the right time.

Someone earning the average (mean) full-time salary of $94,000 will have $1,225 more in their pocket over the course of next financial year.

See Also: Income tax calculator


Renters on the whole faced stiff rent increases in 2023. SQM Research reported that the national asking rent price has risen 9.7% in the 12 months to 12 December, to $604 a week.

For capital cities that was 14.7% to $693 a week; very few markets experienced much rent relief.

For Domain's chief of research Dr Nicola Powell, she said 2024 will be a "tipping point" for renters.

"We've started to see an increase in the number of people per household," she told the Savings Tip Jar Podcast

"That transition is probably playing out more strongly in the rental market, where it's easier to transition to a share house or move location, drop a bedroom."

Easing immigration next year could also ease some of the rent crisis in the capital cities. However, much of the strain on the rental market was seeded when borders were closed, when the average household size decreased, which added demand of about 120,000 dwellings according to RBA research.

CoreLogic's head of Australian research Eliza Owen said the pace of rental price growth will slow in 2024, but won't stop.

"Unfortunately for renters, a slowdown in the rate of rent increases does not necessarily mean rents will fall. Some markets such as Canberra and Hobart have seen distinct falls in rent values through 2023, but even these declines are small relative to the upswing in rents," she said.

"Hobart rent values fell -3.3% annually, while Canberra rents fell -2.0%. However, this follows strong rent value uplifts in both cities in recent years, and in Canberra the pace of decline in rents appeared to be slowing toward the end of 2023."

Energy bills

In 2023 various federal and state government initiatives reduced energy bills via one-off subsidies for various households.

It's thought that it eased the headline inflation figures in the back half of 2023, but these were one-offs and pain is expected to continue in 2024.

Home loans

Some green shoots could be appearing in the home loan space - the peak of interest rates might be already here, or at least near.

InfoChoice data indicates the cheapest home loan rate in the market right now is Unloan's 5.99% p.a. (5.90% p.a. comparison rate*). The average P&I owner occupier loan rate in the database for contrast is 6.93% p.a.

A lot of what happens in the home loan market is highly contingent on RBA cash rate movements, which in-turn are highly dependent on economic data coming through.

Data from the RBA on average interest rates is below; there has been a tapering of longer-term fixed rates.

That said the rate of new lending and credit growth could taper further in 2024 as household budgets reach a nadir.

With affordability constraints hitting some households, Resolve Finance did a survey and revealed 27% of those without a home plan to buy a home in 2024; the figure was just 9% when the same survey was done six months ago.

"The stabilisation of interest rates and the ever-increasing cost of rent may be a catalyst for this shift," managing director Don Crellin said.

And as AMP chief economist Dr Shane Oliver pointed out:

"The 13 rate hikes since May [2022] mean that a variable rate borrower with a $600,000 mortgage will have seen around an extra $17,000 a year added to their mortgage payments," Dr Oliver said.

"Most may have sought a better deal but even if they got a 0.5% discount on their mortgage rate it would now amount to an extra $14,900 in extra mortgage payments."

Savings and term deposits

Savings account rates are highly dependent on the 'here and now' while term deposit rates are more of a crystal ball into what interest rates could do 12 months to 5 years from now. 

Further savings account hikes will likely come off the back of any RBA rate hikes, of which there could be one more in February, while term deposits are a mixed bag.

InfoChoice data for the first three weeks of December there is a schism happening between short-term products and longer term ones. 

Among these, the six-month term stands out with the most significant increase in average interest rates, rising from 4.69% to 4.86% p.a. - a 17 basis point increase.

In our database the highest six-month term rate is sitting at 5.15% p.a. offered by four providers.

In the domain of longer-term deposits, notably, the 1-year average rate has seen an uptick from 4.79% to 4.92% p.a. which is an increase of 12 basis points.

For 3-year terms, there was a decline from 4.89% to 4.78% p.a. - an 11 basis point decrease. Additionally, the 5-year term average exhibited the most substantial decrease, moving from 5.20% to 5.05% p.a.

If you're looking to lock your funds away, if you can beat 5.00% p.a. across any term, you're doing pretty well.

Banks have already started to factor in RBA rate cuts in late 2024 into their forecasts, which is reflected in their longer term deposit products.

Credit cards and personal loans

Notably, credit card and personal loan rates have not kept pace with RBA cash rate increases.

In fact in the first three weeks of December, InfoChoice recorded one personal loan movement in its database, and it was a cut.

One provider cut its personal loan rate from 11.89% p.a. to 9.89% p.a.

The growth in personal loan use has also been documented by the ABS, which reported a 2.1% rise in the value of fixed-term personal loans in October, to a new record of $2.53 billion.

Kevin James, Equifax's general manager of advisory and solutions, said that personal loan use can be a "canary in the coal mine" for general household budget struggles, which could play out further in 2024.

"Using unsecured credit to make ends meet...can create bad debt cycles if [borrowers] can't keep up with repayments," Mr James told the Savings Tip Jar podcast.

Equifax data suggests mortgage stress is on the rise, with the number of mortgage accounts that have been in arrears between 30-90 days 47% higher than this time last year.

Share markets, superannuation, and wealth creation

The back half of 2023 saw volatility in the ASX 200, which dipped below 7,000 briefly, before posting a 'Santa rally' to more than 7,500 in late December.

AMP's Shane Oliver expects the 7,500 benchmark to persist in 2024.

"2024 is likely to see positive returns helped by falling rates but they are likely to be more constrained given likely volatility associated with the high risk of a recession," Dr Oliver said.

Interest rate cuts that might happen in 2024 to bolster economic growth could also spur on share markets.

However Dr Oliver noted the risks of inflation remain a headwind.

For superannuation, he sees balanced portfolios returning around 5.3%; he sees the broader global share markets returning 7.0%, but to expect a rough first half of 2024.

The latest ABS national wealth and accounts data saw a $5 billion rise in super reserves over the three months to September, or 0.1%. Shares on the other hand returned 2.6%.

The average Aussie net worth was about $574,500 off the back of stronger house prices and strong super reserves.

Founder and CEO of Stockspot, Chris Brycki, said a key for success in 2024 is to cut out the noise and stick to the fundamentals of investing.

"Our strategy is quite simple: invest in a diverse mix of low-cost index funds for the long term and filter out the noise," Mr Brycki said.

"In other words, concentrate on the aspects you can control and let go of the things beyond your control."

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