31/03/2019 Australia's Property Slump Drives Biggest Wealth Drop in 7 Years - Bloomberg

Economics

Australia's Property Slump Drives Biggest

Wealth Drop in 7 Years
By Michael Heath
28 March 2019, 11:22 GMT+8

Australia's Property Slump Drives Wealth Drop

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Bloomberg’s Heath explains how Australia’s slumping property and stock markets are affecting

household wealth.

Australia’s slumping property and stock markets have driven the biggest decline in household
wealth in seven years, underscoring pressure on the central bank to resume cutting interest
rates.

Household wealth decreased 2.1 percent in the final three months of last year, the largest drop
since the third quarter of 2011, the statistics bureau said in Sydney Thursday. The decline was
driven by land and property values, which slid for a fourth straight quarter, and financial
assets as pension funds were hit by stock market losses.

Australia is seeing a reversal of its traditional wealth generation method of gearing up to the
limit to buy a house and then inflating away debt with wage rises and property gains. Instead,
asset deflation is pushing up debt ratios: despite restricted lending, mortgage debt as a share
of residential land and dwellings climbed to 28.3 percent, a four-year high.

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31/03/2019 Australia's Property Slump Drives Biggest Wealth Drop in 7 Years - Bloomberg

Reserve Bank chief Philip Lowe last month shifted to a neutral stance as concerns mount that
declining wealth will prompt households to hunker down on spending. The economy slowed
sharply in the second half of last year on weaker consumption, which accounts for almost 60
percent of GDP.

Money markets reckon Lowe will be easing before long and are pricing in almost two quarter-
point cuts from the current 1.5 percent cash rate.

Thursday’s data reinforce the urgency for tax relief and extra spending expected in next
week’s federal budget, but the fiscal injection may prove too late to save Prime Minister Scott
Morrison’s government, which is trailing in opinion polls ahead of an expected May election.

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