Household Net Worth Still Declining

WestpacTrust is the New Zealand division of Westpac Banking Corporation, which is incorporated in New South Wales, Australia

9 August 2000

HOUSEHOLD NET WORTH STILL DECLINING

Falling house prices and rising debt levels have caused the estimated net worth of New Zealand households to decline by 1.3%, or around $2.8 billion, over the June quarter, according to the latest WestpacTrust Household Savings Indicators as compiled by NZIER and Morningstar.

Net worth, as at 30 June 2000, is $5.4 billion (2.5%) lower than a year ago, with the latest drop representing the fourth quarterly decline over the last five quarters. Aggregate net worth now stands at an estimated $206 billion, more than $10 billion less than the peak in aggregate household net worth recorded in December 1997.

Financial net worth, which excludes housing assets and liabilities, was virtually unchanged for the quarter and is actually up by 0.5% for the year ended June.

The overall value of household assets fell by 0.7% during the quarter, with a provisional 1.0% fall in house prices the main contributor. Unusually, however, the value of short term cash and deposits held at financial institutions declined by almost $1 billion (-2.3%).

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“There is normally a steady positive flow of savings into short term deposits each quarter, but this outflow is potentially quite revealing about an underlying change in household behaviour,” said Girol Karacaoglu, WestpacTrust Financial Services general manager. “It looks as though some of this money has been redirected towards other forms of investing, including managed funds, longer term fixed interest securities and offshore equities. If this is genuine long term investment money, rather than short term savings chasing higher yields, then it is an encouraging sign,” he continued.

Liabilities continue to grow, albeit at a slightly slower pace. For the latest quarter, households borrowed an additional $960 million, a 1.4% increase, bringing the total level of borrowing for the year ended June 2000 to just over $5.0 billion.

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“With most of this borrowing classified as “borrowing for housing purposes” and housing values in decline, it is little wonder that households are currently feeling the pinch,” commented Alex Sundakov, director of NZIER. “Most other indicators, including falling consumer confidence and subdued retail sales, are also pointing to weaker private consumption activity in the near term,” Mr Sundakov concluded.

HSI - Summary Data Latest Previous Quarterly Change Previous Annual Change
Quarter Qtr $M % Year $M %
Total Assets $274,890 $276,755 ($1,865) -0.67% $275,199 ($309) -0.11%
* Financial Assets $105,897 $105,857 $39 0.04% $105,018 $879 0.84%
- M3 $41,555 $42,528 ($973) -2.29% $42,129 ($574) -1.36%
- Managed Funds $39,626 $38,935 $690 1.77% $36,532 $3,094 8.47%
- Other $24,716 $24,394 $322 1.32% $26,357 ($1,641) -6.23%
* Housing Stock $168,993 $170,898 ($1,905) -1.11% $170,181 ($1,188) -0.70%

Total Liabilities $68,429 $67,471 $958 1.42% $63,340 $5,089 8.03%

Net Worth (Assets minus Liabilities)
* All Elements (incl Housing) $206,461 $209,284 ($2,823) -1.35% $211,858 ($5,398) -2.55%
* Financial (excl. Housing) $99,486 $99,554 ($68) -0.07% $99,040 $446 0.45%

Offsetting some of the fall in short term deposits and house values was the 1.8% quarterly rise in the value of managed funds. For the year ended June, the value of managed funds held by New Zealand households has risen by 8.5%, an increase of more than $3 billion.

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“This latest positive quarterly increase continues a consistent recent trend of strong growth of New Zealanders’ managed funds assets and will help reinforce and grow New Zealanders’ trust and confidence in the benefits of handing their savings over to investment management professionals,” said Graham Rich, Morningstar managing director.

ENDS

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