Household net worth falls to $2.2 trillion in a fifth consecutive decline as the pandemic bubble deflates

New Zealand households are getting poorer as high interest rates cut the value of their properties and other investments.

Statistics NZ’s March data, released Thursday, showed household net worth had fallen for a fifth consecutive quarter, driven by a 2.6% drop in owner-occupied property values.

A $42.7 billion (or 1.9%) decline in household net worth during the first three months of 2023 brought the annual decline to $175 billion, or 7.3%.

The collective net worth of New Zealand households was $2.2 trillion as of March 2023, down 9.2% from its high of $2.4 trillion at the end of 2021.

However, this decline followed six quarters of abnormally strong growth between July 2020 and December 2021. Household’s net wealth has risen 22% since the start of the pandemic. 

That was a faster rate of growth than in the three years prior to the pandemic, during which net wealth increased just 17.7%. 

Jarrod Kerr, chief economist at Kiwibank, said much of this decline could be seen as a correction after extraordinary gains in asset prices due to fiscal and monetary stimulus. 

House prices, the most important asset for most households, increased 45% in an 18-month period at one point, which couldn’t be justified by any fundamentals. 

“Now we are going through a correction, and just taking the cream off the top of those gains,” he said. 

Kerr said the fall in net wealth was mostly households returning towards the average growth trend and wasn’t a major concern for most.  

“What worries us, as a bank, would be a rise in unemployment — we haven’t seen that yet”. 

Besides property, other financial assets also declined $8.3 billion during the first three months of the year. This is largely investments funds and shares, although it also includes equity in ownership of rental properties. 

Declining asset values were offset by a rise in insurance and pensions, up $5.1 billion, and an increase in currency and deposits of $1 billion.

Can’t stop, won’t stop (spending)

Even though household net worth has fallen, and high interest rates have boosted the incentives to save, New Zealanders are still spending. 

Another Stats NZ release on Thursday showed that they saved just $653 million in the March quarter. That’s $874 million less than in the last three months of 2022.

Paul Pascoe, a senior manager at Stats NZ, said households saved less, as their spending increased at a faster rate than their disposable income.

Household spending increased 3.9%, with a decent chunk being spent on international travel. 

This summer was the first since New Zealand reopened its borders and many Kiwis have taken the opportunity to catch up on missed holidays. 

Net disposable income rose 2.3%, to $58.2 billion, due to higher wages (up 3.7%) and a massive 18.4% increase in interest earned on deposits. 

However, that was offset by an increase in interest paid on loans (up 15%) and a decrease in dividends which was down 19.4%. 

The household saving ratio, which compares household saving to net disposable income, fell to 1.1% from 2.7 percent in the December 2022 quarter.