House prices drive up average wealth

By BRIAN FALLOW economics editor

Household wealth climbed 5.7 per cent over the past year, the fastest rate for six years, propelled by a buoyant housing market and strong income growth.

The Westpac Household Savings Indicators, using data compiled by Morningstar and the Institute of Economic Research, recorded an increase in households' net worth of $2.7 billion in the September quarter, up 1.3 per cent on the June quarter and 5.7 per cent on the same quarter last year.

The increase in the value of household assets came mostly - 90 per cent in the quarter, 82 per cent over the year - from rising property prices.

"However, a significant contribution is also coming from a surge in financial assets outside of managed funds, that is, excluding equities," said Westpac chief economist Adrian Orr.

"This reflects the strong growth in incomes over the past year, and with equities proving uninspiring, most of these earnings are now sitting in households' bank accounts.

"Capital preservation rules for now."

Deposits grew $1 billion in the quarter and $4.1 billion over the year, the biggest increase since 1990.

But borrowing has also been climbing. Households owe the banks $80 billion, 8.6 per cent more than a year ago.

The average net worth of a household is $156,000, up $6500 on a year ago but still below the peak of about $165,000 at the height of the mid-1990s property boom.

The increase in net worth is despite some evaporation of the savings entrusted to managed funds, whose value declined 2.9 per cent, or $1.1 billion, over the quarter.

Morningstar general manager Ross Weavers said there had been a net outflow of money from managed funds over the past year as some investors reassessed their tolerance of market volatility.

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