Housing, income boosts net worth of households

Friday 29th November 2002

The net worth of New Zealand households increased in the September 2002 quarter, according to the latest Westpac Household Savings Indicators as compiled by NZIER and Morningstar.

Over the quarter, household net worth rose $2.7 billion (1.3%) to $215.1 billion.

Net worth is now $11.6 billion (5.7%) higher than the same quarter a year earlier the biggest annual increase since December 1996.

Financial net worth which excludes housing assets and liabilities remained steady in the quarter.

Again the strength of the housing market is driving the improvement in households' net worth. The value of the housing stock increased 2.0% over the quarter and is almost 9% higher than a year ago.

This is mainly being driven by rising house prices, with Quotable Value New Zealand estimating house prices are 8.5% higher than a year ago.

A significant contribution to the improvement in net worth is also coming from a surge in financial assets outside of managed funds that is, bank deposits.

It seems the strong growth in incomes over the past year has left households cash-rich, with much of the "new money" being placed in household's bank accounts as opposed to managed funds.

This is not surprising given that investor confidence has taken a battering from the bursting of the dotcom bubble, high profile corporate failures in the US and a fragile global economy.

Investments that offer a relative degree of short-term capital stability such as bank deposits have clearly been the order of the day.

Managed funds, on the other hand, continue to feel the effects of a realignment of earnings expectations, particularly in the US.

Equity markets suffered a big fall during the September quarter as it became apparent the US economic recovery would continue to be delayed. This contributed to a 2.9% decline in the value of managed funds during the quarter and a 3.3% decline over the year.

The only silver lining in terms of managed funds appears to be mortgage funds where the current boom in the housing market is fuelling growth.

Meanwhile, growth in household borrowing has continued at a solid pace, reflecting the buoyant housing market.

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