Rich man, poor man, beggar man, thief

Australian households might have grown their total wealth by 1.2% in the March quarter to reach a new record of $14.89 trillion, but that’s as high as it will get for a while given the slide in share markets, property values, bonds and other assets in the three months to June.

While the neat $15 trillion figure up 35.3% since the start of the pandemic, it has been driven by the hundreds of billions of dollars of free money, support spending and record low interest rates.

That in turn was poured mostly into housing, as the Australian Bureau of Statistics (ABS) acknowledged in Thursday’s release.

Residential property assets continued to drive increases in household wealth, contributing 1.4 percentage points to growth, the ABS pointed out.

Katherine Keenan, the ABS head of finance and wealth said: “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 per cent nationally.”

Thursday’s ABS data (the country’s financial national accounts for the March quarter) showed our per capita wealth hit a record high of $574,807 at the end of the quarter.

The 35% surge in our national worth was driven by rising property prices (naturally with all that money and low rates) in particular.

The value of residential real estate soared 40% since the start of the pandemic in the March quarter of 2020, while superannuation fund balances increased by 22.5%

The March quarter’s ABS data also confirmed that households have continued to save money, accumulating a total of $305 billion in currency and deposits since over the past two years.

Households added another $40 billion in net savings in the March quarter of this year even as the economy re-opened from pandemic conditions.

Savings in the rest of the world, meanwhile, declined by almost $8 billion.

The ABS data showed that Australian acquired financial assets worth $52.4 billion in the latest quarter, including both deposits and equity in super and pension funds.

Those assets were offset, however, by $44.5 billion of liabilities, of which almost $42 billion was attributed to loans (and most of that were mortgages).

“Deposits assets continued to grow, though at a reduced pace as spending continued to increase following the easing of COVID-19 restrictions,” the ABS pointed out.

“Acquisition of net equity in pension funds reflected continued growth in employment. Decreased activity in the property market in the early months of the new year and repayments made on outstanding credit card balances following the holiday spending period contributed to lower demand for loan borrowings by households this quarter,” the ABS said.

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But the chances of the surge continuing this quarter are nil given the slump in the ASX and offshore markets.

The key ASX 200 has fallen by close to 1,000 points, or more than 13%, since the end of March.

The benchmark S&P 500 index on Wall Street is off more than 17% in the same period as widespread falls have hit hard.

US 10-year bond yields have risen sharply – topping the 3.4% level briefly earlier this month to produce big losses for investors. They have risen from around 2.35% at the end of March to 3.15% on Wednesday.

The Aussie dollar has weakened (which is generally positive for offshore asset values (especially in the US), but the falls in share prices and rise in bond yields have been more than the fall in the Aussie’s value.

And Australian house prices have started easing – down 0.1% in May (and Sydney prices are off around 1.5%).

Some analysts see falls of 10% to 15% over the rest of 2022 and into 2023, with these falls more concentrated in the formerly ‘hot’ Sydney and Melbourne markets.

Sydney prices are up 22.7% in the past two years to May, so there is ample room for a solid correction, but that in turn will see a fall in our national wealth.

On top of this the hundreds of billions in bank deposits and higher than called for home loan payments will be used up if the economy slows dramatically or hits the skids and dips into a recession.