Soaring property prices drive household wealth to record level

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    Soaring property prices have pushed Australian household wealth to record levels, but the Treasury warned that unemployment could spike in the coming months.

    The value of Australian residential property spiked by about $250 billion in the last three months of 2020, according to ABC News. The country’s total household wealth reached a record high of $12 trillion in December.

    According to the Australian Bureau of Statistics, total household wealth grew by $501 billion in the December quarter alone – the largest quarterly spike since 2009. That growth was driven by skyrocketing property prices and a recovery of stock markets.

    The stock market recovery pushed the value of Australians’ superannuation reserves above pre-pandemic levels, ABC News reported. Superannuation reserves rose by $166 billion in the December quarter, and have now fully recovered from losses experienced in the March quarter of 2020.

    Those gains mean total household wealth in Australia and wealth per person – an average of $467,709 – are both sitting at record highs. The ABS said the gain in wealth for property owners was driven by the Reserve Bank of Australia’s expansionary monetary policy and government programs to prop up the housing sector.

    “The December quarter growth in household wealth was driven by rising residential property prices, reflecting record-low interest rates, support through government programs such as the First Home Buyer and the HomeBuilder schemes, and pent-up demand from buyers,” said Katherine Keenan, head of finance and wealth for ABS. “The growth in residential assets was seen across both owner-occupier and investor housing in the December quarter. Owner-occupier loans grew 1.9%, which was the strongest growth seen in four years, while investor housing loans grew 0.4%, which was the first positive growth recorded in the past two years.”

    Despite the rise in property values, ABS data also showed that the housing debt-to-income ratio dropped from 139.2 to 139 in the December quarter as growth in household income (1.2%) outpaced housing debt (1%), ABC News reported. The rise in income was driven by government COVID-19 support programs like JobKeeper and the Coronavirus Supplement.

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    The housing debt-to-income ratio has fallen for the past 12 months, posting a 2.5% drop throughout the year – the largest such drop since 1990.

    Meanwhile, Australian property prices hit record highs in January, with every city and region posting price gains, ABC News reported. In February, house prices posted their highest monthly increase since 2003.

    Eliza Owen, head of Australian research for CoreLogic, told ABC News that few people were selling, while buyers were flooding the market.

    “This is really a function of record-low mortgage rates, a very strong economic recovery and the fact that buyer demand is very strong against relatively low levels of stock,” she said. “We’d either need to see some more restrained lending conditions or higher levels of supply to really start to ease the growth that we’re seeing in the housing market at the moment.”

    Last week, ANZ analysts said they expected prices to spike by 17% nationally this year.

    While property prices and household wealth have increased, the Treasury has warned that the unemployment rate could rise at least temporarily in coming months. The national unemployment rate is currently 5.8%, according to ABC News. More than 805,000 Australians are unemployed, down from 1 million in July. Treasury officials said an additional 100,000 to 150,000 people could find themselves out of work thanks to the end of the JobKeeper subsidy.

    “This does not mean that there will be a commensurate increase in unemployment,” Steve Kennedy, secretary to the Federal Treasury, said last week. “Our view is that the adjustment away from JobKeeper will be manageable and that employment will continue to increase over the course of this year, although the unemployment rate could rise a little over coming months before resuming its downward trajectory.”

    Ryan SmithRyan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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