Australian Wealth Grows Due to Real Estate Prices, Stock Markets and Bitcoin

Australia’s average wealth has just passed the half-million mark. As you can see in the following graph, the wealth of Australians is increasing almost vertically.

The last time wealth grew so rapidly was in 2009 when we bounced off the GFC. It’s different because it’s not a return to previous levels. This time, wealth is reaching new and unprecedented heights.

Can we continue?

Half a million wealth seems like a lot to an adult. What should amaze you is that this calculation is per person, including each child.

Be careful though – it’s the average (or if you prefer more mathematical terminology, the average). Averages can be pulled by a few people with big numbers – imagine how much the average wealth in your home would increase if Bill Gates walked in the door.

A rising average doesn’t necessarily mean that everyone is getting richer. And not everyone in Australia is.

The most mobile part of the wealth equation is the price of housing. If you are not the owner, you can easily feel like the wealth train has left the station without you on board. (Full disclosure – I finally bought my first home earlier this year. It’s a big relief!)

The value of all land and housing in Australia has increased by $ 576 billion in the past three months, the Bureau of Statistics tells us. That’s about a $ 382 increase in homeowners’ wealth each day on average; $ 0 for tenants. The value of the Australian retirement pension has also increased, but less and less. It increased by $ 141 billion ($ 63 per person per day).

The numbers above are all net wealth. Debt does surprising things. Yes, Australian home buyers are taking advantage of record interest rates to borrow huge sums and rush into the housing market. But the total debt doesn’t increase much because mortgage owners pay off their loans quickly.

Expect the unexpected

Australian home prices have done some crazy things during the pandemic. Unexpected things. I thought the prices should go down (experts from the big banks too!). Instead, they just kept increasing.

It turns out that low interest rates and generous government payment programs were more relevant to house prices than migration or a massive recession. But the helium infused nature of home prices is starting to make people nervous again.

Two people you should listen to warned about the housing market last week.

1. RBA Deputy Governor Michelle Bullock

2. Australia’s largest bank CEO Matt Comyn

The RBA has been quite happy with the rise in house prices recently. But last week the deputy governor gave a speech in which they made it clear that they were starting to worry about prices rising too quickly and people being in excessive debt.

“Rapid price increases can increase the likelihood that some new borrowers will strain their financial capacity in order to get a new loan, making them more likely to cut back on consumption in response to a shock to their income,” said the Deputy Governor Michell Bullock. “… [I]If rapid price increases ultimately prove to be unsustainable, they could lead to sharp declines in prices and turnover in the future.

And Commonwealth Bank boss Matt Comyn also seems on edge. Here is what he had to say.

“We think it would be important to take modest steps as soon as possible to relieve some of the heat in the housing market,” Mr. Comyn said.

Pay close attention to this. Comyn makes his bread and butter by lending people money to buy houses. If he wants to slow this down, it must mean that he feels real fear.

Yet the future of Australia’s wealth depends primarily on house prices, which are heavily dependent on interest rates. The RBA has hinted that it will keep interest rates low until at least 2024. There may still be time for average wealth to hit even higher records.