Who would have thought that after all the disruption caused by Covid and the lockdowns, Australia’s net wealth would recover so quickly from 2020’s slide to reach record levels just a year later?
In fact, thanks to booming house prices and sharemarket and the super-fast recovery in the labour market, Australia’s net wealth has risen faster and by a larger amount than it did in the three years to the start of the pandemic in early 2020.
The combination of a 10% rise in house prices and the near 25% rebound in the value of the ASX in the year to March saw Australia’s total household wealth reach an all-time high of $12.664 trillion in the three months to March, according to the Australian Bureau of Statistics.
The March quarter’s National Financial Accounts underlined the unprecedented the strength of the recovery from the slump in the March quarter of last year when net wealth fell 1.8% to $10.9991 trillion.
The past year has in fact seen an unprecedented surge of more than $1.77 trillion, or around 17%.
The three months to March saw net wealth rise 4.3% or $518.billion which in turn saw net wealth per head also rose to a record high of $492,055, up from $428,525 a year ago.
The rise in house prices and share prices has more than offset the small negative impact of the withdrawals from super funds in 2019-20 and 2020-21.
Head of Finance and Wealth at the ABS, Katherine Keenan said in the release that: “Residential assets contributed 3.5 percentage points to the quarterly growth in household wealth, followed by superannuation balances and directly held shares, at 0.6 and 0.2 percentage points.
“Growth in household wealth continued to be driven by rising residential property prices, reflecting record low interest rates, support through a range of government incentives and recovery in the labour market.”
The ABS said that through the year, household wealth grew 15.3%, which is strongest through the year growth since March 2010 (22.6 per cent). Residential assets were up 13.9% ($968.2b) through the year with property prices contributing 8.5 percentage points to the growth and superannuation balances 4.1 percentage points.
Ms Keenan added: “Household wealth grew more in the last year than it did during the preceding three years combined. Over the three years prior to March 2020, household wealth grew 11.4 per cent.”
The deposit assets of banks increased to an unprecedented $304.5 billion, as the Reserve Bank of Australia injected further liquidity into the financial system in line with current monetary policy goals via its bond buying.
The liquidity helped the growth in bank loans to households (3.8%) and the resumption of bank loan borrowing by private non-financial corporations (0.7%) following three quarters of repayments when private non-financial corporations repaid more than they borrowed.
The improvement doesn’t cover issues like rising inequality and housing affordability but it does confirm the Australian economy, the Australian financial system and the ordinary Australian are all far more resilient than we thought in the early months of the pandemic.
And for all those worried about debt – especially the huge amounts of debt being borrowed to buy houses these days – should keep in mind that not all homes carry a mortgage and that the majority of home owners are mortgage free and therefore reaping the full gains from the escalation in house prices.
That is called the wealth effect and with overseas travel blocked, in part helps explain why renovations are running at near $1 billion in value a month, why luxury cars are in high demand (when they can be imported because of the shortage of computer chips) and why demand of some high value goods is booming.
Millions of Australians might be worried, scared even by the repeated small outbreaks of Covid and partial lockdowns, but that is not stopping them spending money.
