KEY POINTS:
The first hit to New Zealand households' net worth in seven years revealed in figures released yesterday is merely a taste of things to come, with further house price declines set to gobble up more wealth, says economist Rozanna Wozniak.
Spicers Household Savings Indicator, a measure of New Zealanders' wealth, showed falling house prices combined with rising debt saw New Zealand households' net worth shrink by 0.9 per cent during the three months to December, the first quarterly decline since 2001.
Arcus Investment Management chief economist Wozniak, an economic adviser to Spicers, said the most surprising thing about the fall in both house prices and net worth was that it hadn't occurred sooner.
"We'd been saying for some time that the housing boom was inevitably going to end and households had to start being more careful about how much debt they were accumulating and that warning needs to be as strong as ever.
"We're only in the very early stages of that softening part of the housing cycle, and I would be very surprised if we don't see more of this."
However, Wozniak pointed out years of house price gains had provided a majority of households with a sizeable buffer.
"For the average household it's just a case of tightening their belt to make sure they can cope with higher mortgage interest rates."
Falling house prices were only an issue for those who had come into the property market late in the cycle and paid highly inflated prices for homes, or else property investors who were relying on ongoing capital gains to make their investment profitable.
"We're already started to see a few people suffer there ... but the average person with the long term in mind, as long as they can ride through the next few years, things will be okay. It only becomes a problem for large amounts of households if what's happening in financial markets snowballs and people start losing their jobs. I can't see that happening."
Outside of housing, New Zealanders' financial assets rose 0.4 per cent during the quarter despite market turmoil, with a $2.2 billion reduction in private shareholdings offset by a $2.4 billion increase in bank deposits.
GOING DOWN
* Spicers Household Savings Indicators
* Household net worth declined by 0.9 per cent during the December quarter.
* Net worth per individual household fell 1.3 per cent or $4900 to $372,825.
* The value of housing stock fell 0.3 per cent.
* The value of financial assets rose 0.4 per cent.
* Total debt increased 2.7 per cent.
