According to ABS data, the value of total household assets fell 1.6 per cent to $12.6 trillion over the two quarters to December 2018.
The fall in the value of household assets coincided with a 1.5 per cent rise in the value of household liabilities, which totalled $2.4 trillion as at December 2018.
This brings household wealth to its lowest level since September 2017.
Why the dip?
A combination of household debt, income and asset value are contributing to these figures.
“While debt levels are quite high, the ratios of asset value to disposable income are much higher,” said CoreLogic research analyst Cameron Kusher.
“While that may be the case, it is important to understand that if asset values fall, the value of the debt typically doesn’t reduce at the same speed, which can lead to asset value erosion,” he said.
According to CoreLogic’s analysis, assets were 927.9 per cent of disposable incomes as at December 2018, declining from a peak of 962.1 per cent in December 2017 off the back of falls in dwelling values.
Accordingly, the ratio of housing assets to disposable income dropped from its peak of 529.7 per cent in December 2017 to 495.3 per cent, which CoreLogic assessed was the lowest since September 2016.
What the future holds
Mr Kusher expects the ratio of assets to disposable incomes to continue falling as housing market weakness persists.
“Although most households will likely remain in a position whereby the value of their assets is significantly higher than their debt, no doubt an increasing number of recent property purchasers will have higher levels of debt than the value of their asset.”
“This is probably an area of most concern for the RBA. If this leads to reduced consumer expenditure and, in turn, slower economic growth, it may be a trigger for either lower official interest rates or changes to mortgage lending policies (or both).”
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