Household wealth (net worth) decreased 2.1% in the December quarter 2018, driven by real holding losses on land and dwellings, and financial assets. The fall in household wealth is the largest since the September quarter 2011 (in percentage terms), and follows a 0.1% (revised) decrease in the previous quarter. Household wealth per capita decreased $10,198.1 to $404,319.8, following a $2,263.7 fall in household wealth in the previous quarter. This is the first consecutive decrease in household wealth per capita since the December quarter 2011.
Real holding losses on land and dwellings were $170.8b. This marks a fourth consecutive quarter of losses and reflects the falling residential property prices over the past year. Real holding losses on financial assets were $141.2b. The losses were mainly on reserves of pension funds (superannuation), reflecting the falls in the Australian stock market during the quarter.
The real holding losses have translated into the first fall in household assets (-1.5%) since the September quarter 2011. Household liabilities increased 1.0%. The percentage point contributions to the change in household wealth were:
Land and dwellings detracted 1.1 percentage points
Other non-financial assets contributed 0.1 percentage points.
Graph 1. Real holding gains/losses
Household transactions in net worth were $25.6b. Financial transactions were $9.9b, driven by the net acquisition of financial assets ($29.5b), with superannuation and deposits the major contributors. Net incurrence of liabilities ($19.6b) partly offset this, driven by transactions in long term loans. Net capital formation ($15.7b) was driven by net acquisitions of land and dwellings ($11.8b).
Graph 2. Components of household balance sheet
HOUSEHOLD DEBT TO ASSETS RATIO AT ITS HIGHEST IN 4 YEARS
The debt to assets ratio gives an indication of the extent to which the overall household balance sheet is geared. Household debt equalled 19.3% of assets, an increase from 18.9% in the previous quarter. This is the highest the ratio has been since the December quarter 2014.
The mortgage debt to residential land and dwellings ratio rose to 28.3%, up from 27.5% in the previous quarter, indicating mortgage debt grew faster than the value of residential real estate owned by households. The rise reflects falling residential property prices rather than strong growth in mortgage debt. This is the fourth consecutive increase in the ratio, and is the highest it has been since the September quarter 2014.
The ratio of household debt to liquid assets increased to 113.8%, up from 113.2% in the previous quarter. The debt to liquid assets ratio reflects the ability of the household sector to quickly extinguish debts using liquid assets. Liquid assets include currency and deposits, short and long term debt securities, and equities. The growth in household debt was driven by increases in loan borrowing during the quarter. Household debt has exceeded 100% of liquid assets since the December quarter 2002, peaking at 129.7% in the June quarter 2011.
Graph 3. Risk ratios
WEALTH EFFECT
Household gross disposable income fell 2.6% to $312.7b from $321.2b in the previous quarter. When other changes in real net wealth, commonly known as the wealth effect, is added to household gross disposable income, household gross disposable income adjusted for other changes in real net wealth fell from $182.1b to $15.8b. This was largely driven by real holding losses in land and dwellings, and financial assets.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
