Household Net Worth Still Trending Down

Falling house prices and rising debt levels have caused the estimated net worth of New Zealand households to decline by 0.3%, or around $0.7 billion, over the September quarter, according to the latest WestpacTrust Household Savings Indicators as compiled by NZIER and Morningstar.

Net worth is also some $3.4 billion (1.6%) lower than a year ago, with the latest drop representing the fifth quarterly decline over the last six 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, rose by $1.0 billion (1.0%) over the quarter and is up by 3.1% for the year ended September.

The overall value of household assets was virtually unchanged for the latest quarter, with a 1.1% rise in financial assets offset by a provisional 0.6% fall in the value of the housing stock.

The value of short term cash and deposits held at financial institutions was also flat for the quarter, continuing a trend that began in the June 1998 quarter where it is reasonable to conclude that households have continued to move money from term deposits to managed funds.

“If this is genuine long term investment money, rather than short term savings chasing higher yields, then it is an encouraging trend,” said Girol Karacaoglu, WestpacTrust Financial Services general manager.

Liabilities continue to grow, however, albeit at a slightly slower pace. For the latest quarter, households borrowed an additional $831 million, a 1.2% increase, bringing the total level of additional borrowing for the year ended September 2000 to just over $4.5 billion.

“With the continuing weakness in household balance sheets, higher interest rates and rising prices, household spending is likely to be somewhat constrained in the short term,” commented Alex Sundakov, director of NZIER.

HSI - Summary Data Latest Previous Quarterly Change Previous Annual Change
Quarter Qtr $M % Year $M %
Total Assets $274,958 $274,786 $173 0.06% $273,851 $1,107 0.40%
* Financial Assets $106,835 $105,705 $1,130 1.07% $103,311 $3,524 3.41%
- M3 $41,973 $41,937 $36 0.09% $41,511 $462 1.11%
- Managed Funds $40,116 $38,980 $1,136 2.91% $36,755 $3,361 9.14%
- Other $24,746 $24,788 ($41) -0.17% $25,045 ($299) -1.19%
* Housing Stock $168,123 $169,081 ($958) -0.57% $170,540 ($2,417) -1.42%

Total Liabilities $69,260 $68,429 $831 1.21% $64,789 $4,470 6.90%

Net Worth (Assets minus Liabilities)
* All Elements (incl Housing) $205,699 $206,357 ($658) -0.32% $209,062 ($3,363) -1.61%
* Financial (excl. Housing) $100,283 $99,294 $989 1.00% $97,248 $3,034 3.12%

By far the most significant feature of the latest data has been the continued strong growth in managed funds, which rose by more than $1.1 billion or 2.9%. For the year ended September, the value of managed funds held by New Zealand households has risen by 9.1%, representing an increase in excess of $3.3 billion.

“This latest positive quarterly increase continues a consistent recent trend of strong net funds inflows into managed funds and hopefully reflects a sustainable improvement in household awareness of the importance of this type of asset within the overall balance sheet,” said Graham Rich, Morningstar managing director.

Household wealth, in particular movements in house prices, is a key influence on overall consumer confidence.

“Given households’ high debt gearing, it is unlikely that a sharp rebound in spending activity will occur until net worth improves. This subdued environment means that the Reserve Bank of New Zealand can afford to leave interest rates on hold for a while yet, despite the clear improvement in the external sectors of the economy and the rise in near-term CPI inflation”, said WestpacTrust Chief Economist Adrian Orr.

ENDS
For more detail and comment, please phone:

Girol Karacaoglu
WestpacTrust Financial Services General Manager
04 801 1120
021 650 613

or

Adrian Orr
WestpacTrust Chief Economist
04 4708250

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