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.
19 Comments
This makes me cringe. The house in which people live is considered as their most important asset. How is it an asset really. It is their need. They cannot live anywhere else otherwise.
And then the astute and rich banks make these gullible people fool by trying to borrow more and more on their houses by saying its their asset to borrow more and remain in slavery for longer.
Such a dumb world we live in.
."This massive in wealth loss doesn't matter as it's "paper wealth", until the day it does actually matter!"
Funny you should say that Yvil, because on the ride up paper wealth mattered greatly to many. In fact it was to the point that it was already banked and people borrowed against it! Now, on the ride down, the reverse will likely apply. For a exponentially growing number - it really does matter. People can be incredibly short sighted when self gratification takes over. Many seem oblivious and naive that we are at the early stages of a prolonged downturn where cash is king.
Ever higher bank debt by tricking the steeple into trading shelter at ever higher prices could indeed be a form of slavery. For what productive outcome. Endless debt servitude in favour of bank shareholders.
Until the corpse is sucked dry. Then the debt holder is the patsy.
Bankruptcy with your popcorn anyone...?
Indeed.
But let's remember that Mr. Orr told us he'd rather err on the side of caution during Covid and cut, cut, cut, and that a problem he'd rather have was damping down the fire of inflation if it broke out. Well here we are, the inflation fire is raging, and Mr Orr is doing what he has to do - or was. If that stat you quote has any meaning at all, it is that there is still a long way to go to remove the necessary, unproductive liquidity from our economy.
This is the guy who said inflation was transitory, and continued pumping cheap money into housing via the Funding For Lending programme until December 2022 - long after it was apparent that the RBNZ and Labour Govt had pumped up the biggest asset bubble in NZ's history. For that alone both of them should be sacked.
How much of that increased spending is a reflection of CPI inflation? I.e. spending more to buy the same amount of stuff. All the essentials are going up - food, energy, rates, insurance, now petrol again. Presumably most people feeling the pinch with less disposable income are tightening spending on "non essentials", even if spending more overall The current situation is very hard for people on low incomes, even if employed.
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