Decline In Household Net Worth Continues In Dec.
WestpacTrust is the New Zealand division of Westpac Banking Corporation, which is incorporated in New South Wales, Australia
18 February 2001
DECLINE IN HOUSEHOLD NET WORTH CONTINUES IN DECEMBER
The net worth of New Zealand households fell for the fourth consecutive quarter in December 2000, according to the latest WestpacTrust Household Savings Indicators as compiled by NZIER and Morningstar.
Over the quarter ended December 2000, New Zealand household net worth fell by $1.5 billion (0.7%). Net worth is now some $5.0 billion (2.4%) lower than a year ago. Financial net worth, which excludes housing assets and liabilities, fell by 0.4% in the quarter. However, compared to the December 1999 quarter, financial net worth is almost 0.7% higher.
Continued growth in liabilities drove the decline in net worth this quarter, with households borrowing an additional $1.1 billion, an increase of 1.6% from September. Over the year to December 2000, liabilities have grown by $4.0 billion or 6.0%. Nevertheless, the pace of borrowing growth has slowed in comparison to the mid-1990s, when it peaked at an annual rate of 16%. This slowing reflects a deceleration in “borrowing for housing purposes”, which accounts for around 90% of the total funds borrowed.
“With house prices rising by around 2% growth per annum in recent years, compared with 8-10% in the mid-1990s, it is not surprising that housing assets are less attractive and that borrowing for housing purposes has begun to trend down,” commented Alex Sundakov, director of NZIER.
- Summary Data
| Dec-00 | Sept-00 | Quarterly | Dec-99 | | Annual Change |
| Qtr ($M) | Qtr ($M) | $M | % || Qtr ($M)$M% |
| Total Assets
| $275,118 | $275,497 | (379) | -0.1 ||
$276,119(1001) | | -0.4 |
| * Financial Assets | $106,657 | $106,746 | (90) | -0.1 | $105,4971160 | | 1.1 |
| - M3 | $42,912 | $41,973 | 939 | 2.2 || $41,72111912.9 |
| - Managed Funds | $39,688 | $40,085 | (398) | -1.0 || $38,07016174.2 |
| - Other | $24,057 | $24,688 | (631) | -2.6 || $25,705(1648) | | -6.4 |
| * Housing Stock | $168,461 | $168,751 | (290) | -0.2 || $170,623(2161) | | -1.3 |
| Total Liabilities | $70,352 | $69,221 | 1131 | 1.6 || $66,35439986.0 |
| Net Worth (Assets | minus Liabilities)
| | | | |
| * All Elements | $204,766 | $206,276 | (1510) | -0.7 || $209,766(4999) | | -2.4 |
| (incl Housing) | | | | |
Financial (excl. | $99,813 | $100,194 | (380) | -0.4
|| $99,1526610.7 |
| Housing) | | | | |
On the asset side of the equation, the overall value of household assets remained relatively steady in the quarter, with the provisional value of the housing stock remaining virtually unchanged, along with financial assets. However, this aggregate result conceals some interesting developments in financial assets.
Following a sustained period of growth, managed funds actually declined in the December quarter (down 1.0%), while significant growth was recorded in short-term deposits (up 2.2%).
“It appears as though the gyrations in the equity market, particularly in the US, have taken their toll on managed funds this quarter, with households instead opting to invest in safe haven term investments,” said Girol Karacaoglu, WestpacTrust Financial Services General Manager.
On an annual basis, however, growth in managed funds continues to exceed that of short term deposits at financial institutions. Over the year, managed fund assets showed the strongest growth, rising in value by $1.6 billion or 4.2%. In comparison, the amount of deposits and cash held at financial institutions rose by only $1.2 billion (2.9%).
“Despite the decline in managed funds over the December quarter, the continued strong trend of net funds inflows into managed funds over the last year is encouraging,” said Graham Rich, Morningstar Chief Executive Officer and Publisher. “In particular, it reflects an awareness of the diversification this type of longer term asset brings to the overall balance sheet.”
Household wealth remains a key influence on consumer confidence and, hence, household spending.
“The continued decline in household net worth over the past year does not bode well for a return to robust spending growth in the near term,” said Adrian Orr WestpacTrust Chief Economist. “Nevertheless, strong employment growth and modest earnings growth over the past six months is expected to provide some support to spending in the first half of this year. Furthermore, with recent data showing the economy is continuing to grow, albeit at a moderate pace, the Reserve Bank is unlikely to be in a hurry to cut interest rates come March 14.”