Australian National Accounts: Household Wealth Increases

From the Desk of the Chief Economist – 25th September 2020 Australian National Accounts: Household Wealth Increases.

Economic uncertainty, and consequently its recovery path, is now a key focus in Australia as the number of COVID-19 cases continues to trend downwards and many restrictions are eased.

The Australian Bureau of Statistics (ABS) released its Australian National Accounts: Finance and Wealth data on 24th September 2020. This latest release from the ABS details national, public and private corporations, government and household financial and capital accounts, and household balance sheets.

Key Statistics

• $161.1B (1.5%) rise in household wealth, to $11,131.8B
• $8.1B rise in Australia’s net lending position to a record $18.4B
• Rise in total capital investment to 23.1% of Gross Domestic Product (GDP), despite a fall in the level of investment
• Demand for credit was $138.0B, the largest funding recorded in the entire time series of Australian National Accounts

From a property perspective it is important to understand how the household financial situation stands, as this impacts the household’s tendency to buy, sell, and/or rent properties.

Household Key Findings

The average household wealth increased $5,881 (1.4%) to $433,833 per person. The growth was driven by financial assets, which increased by 4.6%, largely in superannuation, direct equity holdings, and deposits. June quarter 2020 saw an improvement in financial market conditions, which resulted in a $160.3B rise in superannuation and $31.2B rise in shares and equity. This meant that there was some recouping of losses caused by COVID-19 in March quarter 2020.

JobKeeper and early access to superannuation, combined with reduced household consumption due to job losses and reduced income have interestingly contributed to a $33.4B rise in deposits and $5.4B reduction in short term debt. Households continued to use credit cards less, which significantly contributed to reduction in short-term debt.

The largest offsets to household wealth is related to housing in the June quarter 2020 there was a:

• $83.8B fall in land and dwellings
• $14.3B rise in housing loans

The ABS believes this was driven by two major factors:

• Households taking advantage of record low interest rates to refinance mortgages to larger loan amounts
• Interest accruing on deferred loan repayments as part of COVID-19 relief packages

Moving Forward

The fall in household wealth via land and dwellings as per June quarter 2020 reflected the widespread falls in property prices due to combination of social distancing measures, for example restrictions on auctions and open house inspections, and ongoing economic uncertainty.

There is good news on the horizon however. A 1.5% rise in household wealth suggests that there is pent-up demand for spending in the market, which has the potential to translate to real estate enquiries and transactions. Already many real estate agents, particularly those located in outer metropolitan and regional areas, have reported unprecedented number of sales in July onwards; with buyers coming from within the local area as well as outside investment.

The Reserve Bank of Australia (RBA) is committed to keeping the cash rate at its lowest historical level, until such a time in which we are close to full employment. This is unlikely in the near future, meaning that many households will be able to continue to take advantage of historical low standard variable loans. Already there was a $14.3B increase in housing loans as of June quarter 2020, and with the below circumstances it is forecasted that this number will continue to increase:

• Further re-opening of the economy
• Housing-specific grants for first home buyers
• Federal Government’s initiative to allow for faster access to loans through a re-vamp on the laws governing mortgages, personal loans, credit cards, and payday lendings

The real estate market is already well-equipped in responding to any restrictions imposed due to COVID-19. Further easing of restrictions, combined with a conducive environment of grants and lending practices, will propel real estate activity in the last quarter of 2020.

For further data on the Australian Bureau of Statistics Australian National Accounts, please see here.