Irish household net worth has surpassed €1 trillion for the first time and home values are now higher than at the peak of the Celtic Tiger.
New data released this week by the central bank showed that a sharp rise in home values and cash savings could lift household wealth to a record €995 billion by the end of 2021 from €604 billion in 2007.
With house price increases showing no sign of slowing down this year, total assets have certainly surpassed the €1 trillion mark.
In contrast to the situation before the crash, however, Irish household debt is now in line with the European average, meaning personal balance sheets are in good shape to cope with forthcoming interest rate hikes and an uncertain economic outlook, Goodbody chief economist Dermot O’Leary said .
He pointed out that on the eve of the financial crisis, Ireland’s debt stood at 200 per cent of disposable income, while at the end of December it was just 97 per cent.
More than a decade of deleveraging and record savings rates during the pandemic have radically transformed the financial well-being of Irish households at the aggregate level.
However, as the central bank pointed out, its data say nothing about wealth distribution and do not capture household experiences at the individual level.
While the pandemic has boosted the savings of many professionals who have been able to work from home over the past two years, workers in hard-hit sectors such as hospitality have suffered job cuts and lost income.
Mr O’Leary said households vulnerable to rate hikes were “hidden in the data”.
The European Central Bank is now widely expected to start raising interest rates in July for the first time in more than a decade, which will ultimately mean higher mortgage bills for the nearly 500,000 households with either a tracker or an adjustable-rate home loan.
Financial asset growth was also a key driver of wealth gains over the past year as those with retirement and investing had a strong year for returns. However, financial markets have performed poorly this year in comparison, so some of that wealth could erode in recent months.
Although the savings rate is above pre-pandemic levels, savings began to dwindle late last year as households began to spend their cash.
However, as inflation becomes more of a factor in 2022, hitting a 22-year high of 7 percent in April, consumers are showing more caution and this trend may not continue.
According to data compiled by AIB, consumer spending was flat in April as the rising cost of goods and services began to hit people’s pockets.
British research firm Capital Economics said high inflation will continue to weigh on real incomes in rich countries and there is limited scope for savings to make up the difference.
Spending growth is therefore likely to moderate, meaning economic growth could follow.