Australian personal wealth hits record highs

The last share market trade of the financial year finished fairly flat as Aussies undertook their final chunks of pre-tax return selling.

November, March and May all saw wobbles of various magnitudes during the financial year, yet the market finished the 12 month period up in value by more than 17%.

After a huge drop in share values through the financial crisis, today's trade completes the best financial year for Aussie stocks in six years since the very healthy 20%+ return in 2007.

Despite the material fall in the index during the last quarter, this is outstanding news for Australian superannuation funds and, together with a resurgent housing market, sees Australian household wealth at new record highs.

I doubt it will get reported too much, of course, given our tendency in the modern world to focus on what we don't have rather than being grateful for what we do, but you can read about it here

Household wealth now sits on average at $76,000, so on that measure at least, Australians have never had it so good - we are as well off as any other country on the planet, which is rather an amazing place to be.

And when you consider the levels of unemployment and negative equity that people have endured in Europe and elsewhere, not to mention how countries not an hour from our coast struggle to feed their populations let alone house them, things in Australia are good.

You might feel that if you aren't a stock market investor then you have not benefited from the strong market appreciation, but is that actually true? Most super funds have heavy exposure to stocks and therefore should show very strong returns for the year even net of management fees and transaction costs.

Rising asset prices during bull markets can sometimes lead to something of a virtuous circle (at least, from the perspective of participants), increasing consumer confidence and therefore benefiting economic growth. Not dissimilarly, rising property prices can lead to a 'wealth effect' as consumers feel more inclined to spend as a result of their increased net worth.

It has been said many times that Australian property prices cannot increase too dramatically in this cycle as credit growth should be capped in line with deposit growth (not that there is much evidence of regulatory controls holding back property prices in New Zealand).

This may be true to a point, although Australians have been saving more in recent years. According to the ABS, 22% of Australian assets are now held in cash and deposits which is comfortably ahead of the 10 year average.

Furthermore, as the chart below suggests, Australians are significantly wealthier than they were a year ago (and indeed, they are now wealthier in absolute terms than they were before the financial crisis, taking our average personal wealth to unprecedented levels).

And while much of the increased wealth is locked in super funds, self-managed superannuation funds can now elect to buy investment property too.

As housing finance figures improve it now appears likely that there will be further price gains in this property cycle.

Source: ASX

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