KEY POINTS:
Property values are falling, sure, but it looks like New Zealanders are being quite sensible about the whole thing - our love affair with debt and "putting it on the house" is cooling at the same rate.
Spicers' Household Savings Indicators report released last week shows the net worth of the average Kiwi household increased by $8500 in the September quarter, while average net worth rose by more than $43,000 for the year.
Rozanna Wozniak, chief economist at Arcus Investment Management, who works for Spicers, says that the increase was slightly slower than the 2.7 per cent increase seen during the June quarter.
What these statistics show is that while the growth in house prices has definitely slowed, it's been largely offset by a fall in the amount of debt we're piling up. What the economists class as "liabilities" are up by 2.3 per cent, down from the 3.2 per cent jump in the previous quarter.
"We hope the cooling in debt accumulation is a taste of things to come, particularly given the uncertain outlook for house prices," says Wozniak. "If house price growth continues to slow alongside skyrocketing debt levels, declines in net worth will be likely."
Bank deposits are a key growth area, up 11.7 per cent - that equates to $8.8 billion for the year, reflecting uncertainty with finance companies.
"Five years of strong capital gains have left most New Zealanders in a secure financial position," she says.
The most likely effect of the slowing housing market will be on consumer confidence and consumers' ability to keep drawing down on their home equity to fund consumption.
On the retail side, spending statistics published by Paymark, which processes three quarters of all electronic transactions, show a rise in electronic payments of 7.8 per cent - with about $873 million spent in the first week of December. The increase was lower in Auckland, Wellington and Canterbury than across the rest of the country.
Wozniak says a lowering of debt accumulation "has to happen" because people are less likely to draw down on equity in their property when they are less confident in its value increasing.
"The rate of debt accumulation is slowing, along with the housing market, which is not surprising," says Wozniak.
"If we're buying fewer homes then we're taking on less debt. What you would expect to see is consumption growth to slow.
"It's something you want to see, it's something you'd hope to see, because we can't keep dis-saving at the rate we were.
"We have to slow the rate in which our debt is increasing - and the obvious way is through big ticket items.
"We have gone through a prolonged period when our economy has been driven by consumers - buying homes, watching them go up in value and using that to fund spending."
Wozniak says that this "should imply a soft landing" for the retail and housing market perspectives.
A housing slowdown at a time of low unemployment means the negative impacts are contained in a "relatively small minority of households". "We have got low unemployment - that should enable most people to ride through it okay." This relatively small group includes people who have "got a bit carried away for various reasons".
This group includes people who put all their money into property in the belief that it is risk free, people who borrowed too much to buy the property, and investors who ignored yield and chased capital gain.
Quotable value figures out earlier this month have reinforced the impact of higher interest rates and a shift favouring buyers over sellers.
Growth in property values fell to 11.4 per cent in the year to November.
This is down from October's 12.7 per cent and September's 13.3 per cent. The average sale price fell to $393,198 in November, from $406,176 the month before.
A report by the Infometrics consultancy group, prepared for PMI Mortgage Insurance, says homebuyers should prepare for more falls in home sales activity next year and into 2009.
"Nationwide, annual sales volumes over the next 18 months are forecast to drop to their lowest level since 2001," it says. "As a result, some house price falls are expected throughout 2008/09, with a 1.1 per cent drop in nationwide average values over the year to June 2009."
Overall prices falls are likely to be small though, due to the "reasonably tight" labour market and ongoing wage growth.
This suggests "most property owners" - owner occupiers and investors - should be able to keep servicing debts despite higher interest rates. "Buyer demand is likely to be weaker, but any rise in the number of forced sales is expected to be limited."
High prices in the Auckland region, says Infometrics, imply potential buyers will be more sensitive to higher interest rates.
But it's not all doom and gloom. Average house prices are forecast to be 12.3 per cent higher in June 2010 than three years earlier, an increase of 5.1 per cent in real terms."
