The financial gap between rich and poor households in Australia has narrowed for the first time in years and it’s largely thanks to falling home prices, new research has revealed.

Financial inequality has improved for the first time since 2011 with households feeling optimistic despite falling asset prices, MeBank’s 15th bi-annual Household Financial Comfort report released on Thursday found.

In the seven years since the survey began, the financial comfort of home owners increased significantly compared to that of renters (with each group accounting for approximately a third of all households), while high income earners streaked ahead of other income brackets.

However, the housing market downturn has caused a slight diminishing in the fortunes of wealthier, older, property-owning Australians – who reaped the rewards of real estate booms and rising share markets for much of the past seven years.

At the same time middle and lower-income households have benefited from falling rents and more affordable home prices, easing cost of living pressures.

The financial comfort of renters, while still significantly lower than other tenures, was up 8 per cent to 4.78 out of 10, its highest in four years, reflecting improving rent conditions, the report found.

The overall financial comfort of households who own their home outright fell 3 per cent to 6.27 out of 10, its lowest point since the survey began.

The gap in financial comfort between high and average and lower-income households also closed.

The overall financial comfort of those earning over $200,000 a year fell sharply by 6 per cent to 6.79 out of 10, while those earning $75,000-$100,000 reported their overall financial comfort had increased by 7 per cent to 5.87 out of 10.

Low-income earners taking home less than $40,000 a year saw their financial comfort improve to a lesser extent, rising 2 per cent to 4.52 out of 10.

Households less stressed, more optimistic

Housing stress has also declined, the report found, with households overwhelmingly optimistic about their financial outlooks despite some seeing diminishing returns on assets.

Households are contributing less of their income towards housing each month – a common indicator of financial stress – while the number of households unable to service debt has also fallen.

The easing cost pressures show that, for many, there is a silver lining to falling home prices, ME consulting economist Jeff Oughton said.

“You hear in the media that house prices are falling and there’s a whole heap of gloom and doom…but what you don’t hear about is that most households are relatively optimistic,” he said.

Housing and share market dips haven’t dented the financial outlook of most Australian households, with residential property owners remaining mostly positive about the market.

Only 13 per cent of home owners and 11 per cent of investors expected to see the value of their properties fall in 2019, the report found.

“This is more of a correction than a crash, and that’s what households are saying too. When you ask them about house prices only a minority see falls occurring over the next year, and only a few expect house prices to fall a lot,” Mr Oughton said. 

“There’s no major trigger for fire sales here.”