Household worth on slippery trail

By BRIAN FALLOW economics editor

Households' net worth - their assets minus their liabilities - continues to shrink, as it has for the past four years, according to WestpacTrust's household savings indicators.

In the June quarter, household net worth fell 0.4 per cent, as increased debt and declining house prices swamped a 1.8 per cent rise in financial assets.

Households are collectively $2.5 billion or 1.2 per cent poorer than they were a year ago.

On average, a New Zealand household has a net worth of $148,000, down $16,000 on its peak in September 1997 and only $18,000 more than in March 1990.

WestpacTrust economist Donna Purdue said that although the persistent decline in net worth would continue to act as a constraint on household spending going forward, the strong growth in employment and earnings over the past six months was likely to support spending.

ANZ estimates that average household incomes have risen 6 or 7 per cent over the past 12 months.

Retail sales have been rising for the past five months, and monthly turnover in the housing market is up almost 20 per cent on the same period last year.

But increased turnover has yet to be reflected in higher house prices. Quotable Value's provisional figures for the June quarter record a 0.6 per cent decline in house prices, nationwide.

Despite a drop in the value of the housing stock, households' assets rose 0.2 per cent in the June quarter because of a 1.8 per cent increase in the value of their financial assets, WestpacTrust said.

That was mainly due to a 6.5 per cent rise in the value of funds held in unit trusts and group investments, and a 6.1 per cent rise in funds invested directly in the sharemarket. Bank deposits increased 0.9 per cent.

But the increase in assets was outstripped by a 1.8 per cent increase in household borrowing. Annual growth in debt, which had been slowing since December 1999, picked up again in the June quarter.

Average household debt levels have risen from around 50 per cent of disposable income in the early 1990s to 110 per cent now.

Such a rapid increase in debt is not expected to be repeated, particularly not while the housing market is soft .

"Unlike the mid-1990s, New Zealanders as a whole are clearly not currently enjoying rapid gains in the capital value of what is for the vast majority their most important asset," ANZ said.

"Consequently, there is no great 'wealth effect' to underpin household spending."

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