Australian household wealth hit by plunging stocks and weaker property prices

Mark Metcalfe/Getty Images
  • Falling stocks and property prices saw Australian household wealth fall by the most in seven years in the final three months of 2018.
  • A negative wealth effect has likely contributed to weakness in Australian household spending, contributing the broader economic slowdown seen in the second half of last year.
  • While Australia’s jobs market has, to this point, been resilient to the slowdown in the economy, speculation over additional fiscal and monetary stimulus to help support spending levels continues to increase

Australian household wealth fell at the fastest pace in seven years in the final there months of last year, dragged down by a plunge in stocks and continued weakness in home prices.

According to the Australian Bureau of Statistics (ABS), household wealth slipped by 2.1% during the December quarter, representing a decline in dollar terms of $257.6 billion.

It was the largest percentage decline since the September quarter of 2011.

Combined with a 0.1% drop in wealth in the September quarter last year, it left total household wealth at $10.18 trillion.

ABS

Per individual household, average wealth decreased by $10,200 to $404,320, following a $2,264 fall in household wealth in the previous quarter.

This was the first consecutive decrease in household wealth per capita since the December quarter 2011, according to the ABS, driven by weakness in housing prices and Australian stocks late last year.

The ASX 200 shed 9.1% in the December quarter. Home prices, as measured by the ABS Residential Property Price Index, also fell by 2.4% across Australia’s capitals, the largest percentage decline since the series began in late 2003.

With asset prices falling, the ABS said the level of household gearing rose to 19.3%, up from 18.9% in the prior quarter and the highest level since late 2014. This measures household liabilities as a proportion of household assets.

“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 ABS said.

“The rise reflects falling residential property prices rather than strong growth in mortgage debt.”

While Australian stocks have recovered ground in early 2019, home prices, as measured by CoreLogic, have continued to slide, led primarily by Sydney and Melbourne, Australia’s largest and most expensive housing markets.

The decline in wealth has likely contributed to the recent slowdown in household spending, the largest part of the economy, increasing by just 0.3% and 0.4% respectively in the final two quarters of last year.

Retail sales in January grew by just 0.1%, following a large 0.4% decline in December, while new car sales have also fallen sharply compared to the levels of a year ago.

The negative wealth effect from falling home prices has seen expectations for household spending this year scaled back, including from the RBA, placing greater importance on the jobs market to remain firm to help support household finances.

While official jobs data has remained resilient to the deceleration in the economy to this point, some leading labour market indicators have started to keel over in recent months, raising concern that hiring will slow and unemployment potentially increase.

Coupled with renewed concern over the outlook for the global economy, that has seen markets move to price in around 50 basis points of rate cuts from RBA by the end of next year.

With Australia’s budget position now far stronger than at any point in the past decade, speculation is also increasing about potential stimulus spending from the government, including income tax cuts, ahead of Australia’s federal election that will be held at some point in May.

Australian Treasurer Josh Frydenberg will deliver his maiden budget next Tuesday, coincidentally the same day the RBA will announce its April interest rate decision.

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