Household wealth surged in Q4. Now comes the bust.

The ABS has released household wealth data for the December quarter of 2019, which revealed a big lift in wealth driven by property:

Household wealth

Household net worth (wealth) increased $360.9b (3.3%) in December quarter 2019 driven by a $382.8b increase in total assets. This was partly offset by a $21.8b increase in total liabilities. Household wealth per capita increased $12,809 to $442,705, the largest increase since December quarter 2009. With quarterly growth in household wealth at its highest in ten years, through the year growth in household wealth has recovered from the negative results seen in 2018-19.

The increase in total assets was driven by residential land and dwellings. The value of residential land and dwellings rose $282.0b (4.3%) driven by real holding gains of $233.4b. This is the strongest real holding gain on residential land and dwellings since December quarter 2009.

The value of household financial assets increased 1.5%, a moderate result given the record growth in early 2019. This reflects smaller holding gains on financial assets, while net financial transactions were steady. While holdings in pension fund assets are at a high of 55.7% of total household financial assets, the share of deposits remain at a nine year low of 19.4%. The long term decline in deposits as a proportion of financial assets is in line with record low interest rates, with the cash rate cut by 25 basis points in October, following the 25 basis point cuts in both June and July.

The growth in financial assets was driven by reserves in pension funds, which increased $51.7b, of which $19.3b were due to transactions and $32.4b were due to revaluations. As 77.4% of reserves in pension funds were invested in shares, the movement is influenced by the performance of the domestic and overseas stock markets.

Household liabilities grew 0.9%, following soft growth last quarter. Total household sector liabilities were $2,491b, 92% of which were long term loans. The 0.9% growth in long term loans was due to a pick up in owner occupier and unincorporated business loans, partly offset by falls in investor loans.

Long term loans from authorised deposit taking institutions (ADIs) made up $18.1b of total transactions in long term loans. Short term loan borrowing by households increased 0.2%, driven by an increase in transactions with other broad money institutions ($0.3b). Net transactions in short term loans borrowed from ADIs, which includes borrowing through credit cards, fell $0.2b, the first negative result for a December quarter since 2015.

Household transactions in net worth were $35.5b. Financial transactions were the largest component contributing $22.9b, driven by a net acquisition of financial assets of $43.5b, and partly offset by a net incurrence of liabilities of $20.6b. Net capital formation contributed $12.6b to household transactions in net worth and was driven by land and dwellings ($8.6b) and other non-financial assets ($4.0b).

Household debt to assets ratios

The household debt to assets ratio decreased from 18.4 to 18.1, as growth in household assets (2.9%) outgrew household debt (0.9%), indicating households’ gearing ratio fell this quarter. This is largely a reflection of the value of land and dwellings owned by households outgrowing mortgage debt. The ratio of mortgage debt to residential land and dwellings decreased from 28.4 to 27.5 this quarter. The decrease in the ratio is driven by the strongest increase in the value of residential land and dwellings since December quarter 2009, with growth in mortgage debt still relatively weak.

The household debt to liquid asset ratio decreased from 109.9 to 109.6, as growth in household liquid assets (1.1%) slightly outweighed growth in household debt (0.9%). The fall in the ratio reflects an improvement in households’ ability to extinguish debts using liquid assets (currency, deposits, debt securities, and equity) quicker.

The wealth effect

The household saving ratio decreased from $10.7b to $1.4b in December quarter 2019. The $9.2b decrease was driven by a decrease in gross disposable income ($14.9b), partly offset by increases in final consumption expenditure ($13.5b) and consumption of fixed capital ($0.2b). The decrease in gross disposable income was driven by a $11.8b decrease in dividends received and a $13.9b increase in income tax payable.

Household gross disposable income adjusted for other changes in real net wealth (wealth effect) increased from $532.5b to $585.4b, and household net saving adjusted for other changes in real net wealth increased from $226.2b to $265.3b. The increases in gross disposable income and household net saving when adjusted for other changes in net wealth are due to total real holding gains of $252.2b, the strongest result since December quarter 2009.

Obviously this data is next to useless in the current climate. With the ASX already plummeting around 30% from its February peak (with more losses to come) and property prices soon to decline, household wealth will be smashed through 2020. By how much is the only question.

Leith van Onselen
Latest posts by Leith van Onselen (see all)

Comments are hidden for Membership Subscribers only.