Total net wealth of Irish households fell in first quarter

The total net wealth of all Irish households declined in the first three months of 2013 compared to the previous quarter, according to figures published by the Central Bank.

It followed two consecutive quarterly increases in household net wealth in the second half of last year.

Net wealth is derived when the value of all liabilities (mostly bank debt in the case of Irish households) is subtracted from the value of all assets.

Roughly half the value of total Irish household assets is in property, with the remainder being held in the form of financial assets, such as pension investments, cash on deposit in banks and holdings of company shares.

In the first three months of 2013, aggregate net household wealth amounted to €463.7 billion, or €101,117 per person. This represented a decrease of €1.8 billion or 0.4 per cent on the previous quarter. The decline in net worth took place despite the continued reduction in debt levels as households repay more debt than they take on in new borrowings.

Household debt declined by €1.6 billion in the first quarter to stand at €172.3 billion or €37,572 per capita, its lowest level since the end of 2006.

However, the Central Bank noted that household debt sustainability indicators remained largely unchanged over the quarter despite the reduction in debt. Debt as a proportion of disposable income fell by just 0.1 percentage points, to 197.3 per cent, as the decline in debt was partly outstripped by a decrease in disposable income.

Asset decline
On the asset side of households' aggregate balance sheet, a further decline was recorded in the first quarter. This was accounted for entirely by a decrease in the value of housing assets of €8.7 billion. That, in turn, reflected the drop in house prices in the first months of the year after an uptick in the final months of 2012 in anticipation of the year-end expiry of mortgage interest relief.

Separate figures show that in the second quarter of 2013 house prices were broadly stable as the mortgage interest relief effect wore off. This should mean that household balance sheet developments in the April to June quarter will be more stable.

Partially offsetting the decline in the value of housing assets in the first quarter was an increase in the value of financial assets of €6 billion.

Household net wealth peaked in 2007 before falling precipitously. It reached a post-crash lowpoint in the second quarter of last year. The peak-to-trough decline in wealth of more than one-third was much larger than declines in household incomes.

Yesterday's figures also included data on the aggregate balance sheet of non-financial companies (NFCs) resident in Ireland. NFC debt decreased by €1 billion over the quarter to stand at €318 billion. This marked the third consecutive quarterly decline in debt.

While there was a decrease in the level of debt, debt as a percentage of GDP increased slightly – by 0.3 percentage points to reach 195 per cent. This was the first increase in the NFC debt to GDP ratio since the second quarter of 2012.

Irish NFCs were the second most indebted in the EU in early 2013. The Central Bank warned, however, that when comparing NFC debt across countries, Ireland’s unusually large multinational presence affected the figures. The sector is believed to exaggerate the level of aggregate corporate debt relative to GDP.