Australia's Property Slump Drives Biggest Wealth Drop in 7 Years

(Bloomberg) -- 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.

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.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke, Peter Vercoe

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