Thanks to rises in the valuation of shares, and a bounce in property values, on paper households are now more wealthy, with the value of total assets growing faster than borrowing, and aided by overall population growth. Households were net lenders of $54.3b, depositing $23.8b and accruing $16.1b in net equity in reserves of pension funds (superannuation).
According to data released by the Australian Bureau of Statistics, household net worth (wealth) increased $318.0b (3.0%) in September quarter 2019, driven by a $322.3b increase in total assets, partly offset by a $4.3b increase in total liabilities.
The increase in total assets was driven by residential land and dwellings. The value of residential land and dwellings increased 2.9%, driven by total holding gains of $174.4b. This represents the first quarter of real holding gains on residential land and dwellings following six consecutive quarters of losses.
Household wealth per capita has increased $10,698.6 to $428,573.5, the largest increase since December 2016. With quarterly growth in household wealth at its highest in nearly two years, through the year growth in household wealth has made a recovery from the negative results seen over the 2018-19 year.
The value of household financial assets increased 2.3%, a moderate result relative to the record growth in the previous two quarters. This reflects smaller holding gains on financial assets, while net financial transactions were steady. While holdings in pension fund assets are at a high of 55.6% of total household financial assets, the share of deposits remain at a nine year low of 19.5%. This is in line with record low interest rates as the RBA board reduced the cash rate a further 25 basis points at its July meeting, following a 25 basis point cut in June.
Graph 1. Household net worth through the year growth
The growth in financial asset was driven by superannuation assets, which are made up of reserves of pension funds and unfunded superannuation claims. Reserves of pension funds increased $68.3b, of which $52.2b were due to positive revaluations as 77.1% of reserve assets were invested in shares, and therefore influenced by the performance the Australian stock market.
Household liabilities grew 0.2% and is the softest growth since March quarter 1993. Total household sector liabilities were $2,471.7b, 92% of which were long term loans. The growth in long term loans of 0.3% was due to weakness in owner occupier loans, and falls in investor, unincorporated business and fixed term loans.
Long term loans by authorised deposit taking institutions (ADIs) and securitisers made up $3.3b of the transactions of the long term loans. Net transactions in long term loans from rest of world (-$2.0b) detracted from growth. Short term loan borrowing by households decreased 2.3%, with net transactions of -$18b driven by households paying off their short term loans with ADIs. Net transactions in short term loans borrowed from ADIs is the strongest negative result for a September quarter in five years.
Household transactions in net worth were $61.8b. Financial transactions were the largest component contributing $54.1b, driven by a net acquisition of financial assets of $53.5b, and partly offset by a net incurrence of liabilities of -$0.6b. Net capital formation contributed $7.7b to household transactions in net worth and was driven by land and dwellings ($9.4b), partly offset by other non-financial assets (-$1.7b).
Household debt to assets ratios
The household debt to assets ratio gives an indication of the extent to which the overall household balance sheet is geared. The household debt to assets ratio decreased from 18.9 to 18.5, as growth in household assets (2.5%) outgrew household debt (0.2%).
The mortgage debt to residential land and dwellings ratio decreased from 29.2 to 28.6, indicating the value of residential land and dwellings outgrew mortgage debt. The decrease in the ratio is driven by the strongest increase in the value of residential land and dwellings since December quarter 2016, combined with the weakest growth in mortgage debt since September quarter 2013.
The household debt to liquid assets ratio reflects the ability of households to quickly extinguish debts using liquid assets (currency and deposits, short and long term debt securities, and equity). The household debt to liquid asset ratio decreased from 112.0 to 110.0, as growth in household liquid assets (2.1%) outweighed growth in household debt (0.2%). Growth in liquid assets was driven by increases in household deposit assets which contributed 1.1 percentage points to the 2.1% increase. Growth in household debt was weak, driven by a 0.3% increase in long term loan borrowing.
Graph 2. Mortgage debt to residential land and dwellings ratio breakdown
The wealth effect
Household net saving increased from -$3.3b to $10.7b in September quarter 2019. The $13.9b increase was drivenby
an increase in gross disposable income ($45.5b), partly offset by
increases in final consumption expenditure ($3.6b) and consumption of
fixed capital ($0.3b). The increase in gross disposable income was
driven by a $11.9b increase in dividends received and a $23.5b decrease
in income tax payable.
Household gross disposable income adjusted for other changes in real net
wealth (wealth effect) increased from $467.6b to $529.2b and household
net saving adjusted for other changes in real net wealth increased from
$165.1b to $222.8b. The increases in gross disposable income and
household net saving when adjusted for other changes in net wealth are
due to total real holding gains of $181.1b, the strongest result since
March quarter 2017.
Graph 3. Net saving plus other changes in real net wealth, original
Demand for credit
Demand for credit ($42.8b) continued to slow this quarter, following 2018-19 which had the weakest annual demand for credit since 2012-13. Demand for credit this quarter was driven by the public sector, with subdued demand by the private sector and households. Households’ demand for credit (-$1.3b) was negative for the first time since March quarter 1993. Net bond issuances by National general government were $12.1b, while state and local general government borrowed $8.9b. While other private non-financial corporations borrowed $10.4b, equity raising by the sector was only $1.0b.
Demand for credit by household continues to be impacted by the slowing growth in loans for residential property, reflecting the weak housing market. Households transactions in loans were negative for the first time since December quarter 2014, with $12.2b of household loans being securitised. Growth in owner occupier loan balances continued to soften, while investor loans balances fell. Household short term loan balances also continued to drop.
Demand for credit by other private non-financial corporations was the second weakest demand in 7 years ( first being December 2018). This is in line with the lowest equity raising by the sector since December quarter 2012. National general government’s demand for credit was the highest since June quarter 2017, corresponding with a strong increase in net bond issuances this quarter. State and local general government’s demand for credit was the highest since June quarter 2012, driven by loans from central borrowing authorities, with the sector’s credit demand over the past year the strongest since 2012.
Graph 1. Demand for credit
Valuations increases in bonds and equities drive credit market outstanding
Despite subdued demand for credit over the past year, significant
valuation increases have pushed through the year growth in credit market
outstanding of non-financial domestic sectors to 5.7%. Strong price
increases in the Australian stock market and falling bond yields,
particularly over the last 3 quarters, were the main contributors to the
growth.
Credit market outstanding rose 1.3% this quarter, following last
quarter’s 2.3% increase. There were significant valuation increases in
the equity of other private non-financial corporations and government
bonds, reflecting the rise in the Australian stock market and falling
bond yields during the quarter.
Graph 2. Credit market outstanding
National investment falls in September quarter
National investment decreased by $5.1b to $110.5b this quarter.
Graph 1. Total capital formation, current prices
The general government sector invested $16.7b over the quarter, down
from $23.8b in June. A fall is typical for the September quarter.
Household investment decreased by $0.5b, falling to $38.4b overall. This
was driven by declines in machinery and equipment and dwelling
investment, partly offset by an increase in ownership transfer costs.
Private non-financial corporations investment increased by $3.5b this
quarter to $46.5b. This was driven by a build up of inventories leading
into the Christmas period.
Australia continues to be a net lender
National net lending was $7.7b in September quarter 2019 as gross saving of $119.1b was used to fund national investment.
During the quarter, residents acquired $19.7b of shares and other equity
issued by the rest of world, with non-money market financial investment
funds and pension funds acquiring $11.3b and $8.2b respectively. The
rest of the world borrowed $20.9b in loans from domestic authorised
deposit taking institutions (ADIs).
ADIs settled $20.9b of their derivative contracts with rest of the
world. The rest of the world acquired $17.4b of shares and other equity
issued by residents.
Graph 2. Net financial investment (net lending (+) / net borrowing (-))
Non-financial corporations were net borrowers of $7.7b, driven by loan
borrowings ($17.6b) and issuance of equity ($4.8b) partly offset by
maturities of $3.7b in debt securities.
The general government was a net borrower of $17.9b, driven by issuances
of long term debt securities ($11.8b) and loan borrowings ($9.3b).
Households were net lenders of $54.3b, depositing $23.8b and accruing
$16.1b in net equity in reserves of pension funds (superannuation).
