Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Friday, 26 June 2015

Household wealth surges past $8 trillion

Record household wealth

Are Australians becoming wealthier?

You certainly wouldn't think so with all the perceived doom and gloom around!

In fact, the ABS released its Finance and Wealth figures yesterday for the first quarter of the year and the answer is...well, yes.

So much so, in fact, that household wealth in aggregate has bolted off the top my chart to $8.1 trillion, up from $7.4 trillion one year ago.

It looks as though I'll have to re-calibrate the y-axis when I can be bothered to do so in the June quarter.

This represents another robust increase of $690 billion or 9.3 per cent on a year ago.

Drivers of wealth in Q1

Household wealth increased solidly by 2.9 per cent in the March quarter.

While the above chart is only an abbreviated version of the household balance sheet, the drivers of the growth were, erm, essentially everything. 

Financial assets surged 4 per cent higher in Q1, but non-financial assets were up strongly too, rising by 1.7 per cent. 

Shares did well. 

So did property.

The usual spruik about real estate assets disproportionately driving growth was spewed forth, of course, but anyone who'd bothered to check would have discovered that residential land and dwellings as a percentage of total assets declined! 

To be sure, land values did rise strongly over the past year to be 9.3 per cent higher.

We know from previous research that this dynamic was driven overwhelmingly by a surge in capital city land values, while regional centres only saw land values increasingly broadly in line with inflation, or in some cases a little bit above.

Nothing too surprising there.

There were some other pieces put out about falling savings or something, when in fact currency and deposits have surged higher in aggregate (and as a share of total household assets sit waaay higher than they did before the financial crisis).

What have I missed? 

Unprecedented household debt? 

Sure, maybe half a green tick for that one, although Dr. Kent and the Reserve Bank of Australia would ask us to consider mortgage offsets and deposits, which would probably lead us to the conclusion that household debt to income ratios have been broadly flat over the past five years.

With asset values rising the household debt to assets ratio ticked back to 20.8 percent, down from 22.1 per cent three years ago in the March 2012 quarter.

The interest burden

Commsec likes to take a look at the ratio of household interest payments to disposable income (the ABS looks at interest payable to income) and found that the ratio has slumped to its lowest level in 11.5 years.

Evidently if interest rates were to rise then this could add a level of pressure to the average household purse, but it's hardly as though mortgage stress is in widespread evidence today. 

In fact, serious loan arrears have been tracking at their lowest level in years.

Moreover, there are no rate hikes on the horizon forever-and-a-day, so it's far more likely that record mortgage buffers are likely to be the order of the day.

Even the ├╝ber-hawkish HSBC who have been calling rate hikes for yonks now have conceded that rates likely won't be moving higher until 2017 at the earliest.

Does it sound like I've had a long day?

Better form tomorrow!!