Household appetite for debt starting to cool
Household appetite for debt finally starting to cool
Spicers’ latest Household Savings Indicators report shows the net worth of the average New Zealand household increased $8,500 (2.6%) during the September 2007 quarter. Average net worth reached $383,400, up $43,200 for the year.
Arcus Investment Management Chief Economist Rozanna Wozniak, who is an economist for Spicers, says the increase in net worth for the quarter was slightly slower than the 2.7% increase experienced during the June quarter.
“The negative effect of a slowing in the pace of house price growth was largely offset by a slight reduction in debt accumulation. Liabilities increased 2.3%, down from 3.2% 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. If house price growth continues to slow alongside skyrocketing debt levels, declines in net worth would be likely.”
Ms Wozniak says household assets increased 2.5% for the quarter, compared to 2.8% the previous quarter. This is the result of slower growth in both housing and financial assets.
“Bank deposits were a key growth area, up 11.7% or $8.8 billion for the year, reflecting the ongoing uncertainty in the finance company sector.
She says five years of strong capital gains have left most New Zealanders in a secure financial position.
“High interest rates and a possible modest decline in house prices need not cause undue concern as long as borrowers haven’t stretched their budgets to the limit.”
Ms Wozniak says the most likely effect of the slowing housing market will be on consumer confidence and the ability of consumers to keep drawing down on their home equity to fund consumption.
“Financial institutions are becoming more cautious, reflecting the combination of the recent turmoil in debt markets and the increased uncertainty that surrounds house prices.”
“Households that are most vulnerable include owners of hard to sell shoe-box sized apartments, homeowners exposed to the property developer/finance company sectors and latecomers to the market with high levels of borrowing who haven’t left a buffer for the unexpected.”
On a positive note, Ms Wozniak says the economy is receiving significant stimulus from fiscal spending and high dairy incomes.
“For much of the country, these two effects will be less direct and visible than the negative impact of high mortgage interest rates, a slowing housing market and very high petrol prices. We do not believe these positive factors will prevent the current slowdown in the housing sector from continuing.”
A full version of Spicers’ latest Household Savings Indicators report is attached. It can also be seen at: www.spicers.co.nz.