The Melbourne Institute Household Saving and Investment Report shows the lowest share of debt free households since the start of the survey in March 2001.

Dr. Edda Claus, a Research Fellow at the Melbourne Institute, said, “the share of debt free households fell to 36.2 percent” while “the share of respondents that fully own their home fell to 37.5 percent.”

The report also shows a drop in the household financial conditions index. The index fell from 33.7 in June to 32.7 in September.

The figures pose a danger when employment would be hurt.

Reserve Bank of Australia (RBA) data show the ratio of household debt to disposable income reached 159 percent in the 2010 June quarter. The ratio, the highest on record, was largely attributed to the increase is higher mortgage debt.

The forecast 1.25 percentage points rise in interest rates before the end of 2011 will make households vulnerable to sharp increases in loan repayments.

According to JPMorgan senior economist Helen Kevans, “''During the crisis there was little evidence that households actually deleveraged. Because we've taken on so much debt over the last few years, households are becoming much more sensitive to changes in interest rates.”

Kevans, however, maintained a significant degree of optimism. “As long as people keep their jobs, it should be okay,” she said.