Home prices drive record $14.9 trillion wealth

Reference: REA

Australian households have never been wealthier thanks to the pandemic surge in housing prices, with their overall wealth hitting a record $14.9 trillion.

But many Australians are starting to cut back on their spending where they can as the cost of living rises, while two major banks are now tipping there will be three super-sized interest rate hikes in a row.

Total household wealth in Australia rose by $173 billion or 1.2% to a record $14.9 trillion in the March quarter, Australian Bureau of Statistics data released on Thursday showed.

Overhead view of rooftops in a Sydney suburb
The strength in the housing market has driven household wealth to record levels. Picture: Getty

The average wealth per person also reached a record $574,807 – a rise of $3695 over the quarter but a massive $146,008 increase since the start of the pandemic.

ABS head of finance and wealth Katherine Keenan said residential property assets continued to drive increases in household wealth.

“While the pace of property price growth started to moderate, with falls in Sydney and Melbourne this quarter, other capital cities and regional areas rose, resulting in an overall rise in house prices of 1.9% nationally,” Ms Keenan said.

Household wealth or their net worth has jumped by 35.3% during the pandemic, with the strength of the housing market accounting for most of the growth since the March quarter 2020.

The ABS said residential property assets have risen by 39.9% since the start of the pandemic, while superannuation balances increased 22.5% as share markets gained ground.

CommSec chief economist Craig James said household wealth hit new highs at the end of March, underpinned by higher home prices.

“But that is likely to be as good as it is going to get for a while,” Mr James said.

“Home prices have started to ease, especially in Sydney and Melbourne. And share prices have eased sharply in the June quarter with the ASX 200 index down by around 13%.”

The ABS noted the 1.2% increase in household wealth in the March quarter this year was the lowest growth since the March quarter 2020.

While property prices rose during the quarter, superannuation balances dipped by 1.3% as heightened uncertainty in global share markets weighed on the value of overseas assets held through superannuation funds.

More mega interest rate hikes expected

Westpac economists have now joined their NAB counterparts in predicting the Reserve Bank of Australia will deliver three consecutive super-sized interest rate rises.

After lifting the record-low cash rate by 25 basis points in May and by a super-sized 50 basis points in June, economists at all four major banks expect the RBA will hike the cash rate by 50 basis points again in July.

Westpac and NAB predict there will be a third lift of 50 basis points in August.

Wealthy eastern suburbs of Sydney city around the harbour in aerial view with soft morning light and blue sky.
Some economists believe the RBA will deliver three super-sized interest rate hikes in a row. Picture: Getty

Westpac economists on Thursday lifted their forecast for the peak in the RBA’s tightening cycle from 2.35% to 2.6%, due to a more aggressive approach to rate hikes by the US Federal Reserve.

In a speech on Tuesday, Mr Lowe said the RBA’s first increases in interest rates have not affected most people’s mortgage repayments that much because of the financial buffers built up during the pandemic.

“But as interest rates start to rise those buffers will be eaten into and given the fact that households have more debt than they used to, it will start to bite and we’re very conscious of that,” Mr Lowe said.

Mr Lowe also said the RBA now expects inflation to spike to around 7% in the December quarter before beginning to decline by early next year.

RBA and regulators watching impact of higher prices and rates

Australia’s financial regulators are monitoring the impact of rising interest rates on households and on the housing market.

The Council of Financial Regulators, chaired by Mr Lowe, discussed the issues at its regular quarterly meeting on Monday.

“Members considered how risks in the housing market might evolve as rising interest rates flow through to mortgage repayments and households’ borrowing capacity,” minutes of the meeting released on Thursday said.

“Housing market indicators suggest that activity has weakened in the major cities in recent months and housing price growth nationally has slowed, although housing lending is only just starting to ease.”

The council said it will be closely monitoring the effects of rising interest rates on the household sector.

“Members emphasised the additional resilience provided by the substantial housing equity and payment buffers built up by households since the onset of the pandemic.”

The RBA board is also closely watching how households adjust their spending in response to higher prices and interest rates, plus the impact of rate rises on the housing market.

Minutes of the board’s June meeting showed the board noted that housing prices had declined in some markets but remained more than 25% higher than before the pandemic, thereby supporting household wealth and spending.

Leave a Reply

Your email address will not be published. Required fields are marked *