Wealth falls, inflation drops but lower OCR still a way off

Household net worth fell by $33.5 billion in the June quarter, with more than half put down to declining property values, Stats NZ data show.

Friday, October 20th 2023, 9:37AM

by Sally Lindsay

Household net worth has fallen by $255.2 billion over the past six quarters, following a period of growth up to the December 2021 quarter, when it peaked at a total value of  $2,433 billion.

That’s a reduction of nearly 10.5%, data from Stats NZ’s latest household net worth figures show.

“This quarter’s decrease in household net worth was mainly due to the continuing fall in equity and investment fund shares and value of owner-occupied property,” Paul Pascoe, Stats NZ’s national accounts institutional sectors senior manager says.

Equity and investment fund shares fell by $19.9 billion or 2.2% in the quarter. Equity includes the ownership of rental properties, which has also been affected by falling property values.

A rise in household loans of $2.5 billion also contributed to the decline in household net worth.

CoreLogic figures show New Zealand residential real estate is worth $1.58 trillion across 1.69 million dwellings that have $352 billion of mortgages against them. Investment in real estate far outweighs $165 billion held in New Zealand Super and KiwiSaver, $157 billion in listed stocks and $321 billion in commercial property.

Residential property prices have fallen about 16% from peak to trough.

While house price falls are slowing and showing a slight recovery, CoreLogic says buyers of existing properties without the required deposit are still finding it tough to get around the loan-to-value ratio rules, with banks keeping a buffer between actual high LVR lending and the maximum allowance. Looser LVRs from 1 June have seen a sharp rise in the share of investor lending with a 35-40% deposit.

About 54% of existing mortgages by value are fixed and due to reprice onto a new generally higher mortgage rate over the next 12 months.

This will require a significant adjustment to those households’ finances. At least in terms of new lending flows, however, loans at high multiples of debt to income have fallen to low levels.

While inflation is down to 5.6%, economists don’t see any hard evidence it is good enough to start any serious thinking about monetary policy easing in the next few months and interest rates falling. The big New Zealand property buy-up was when interest rates were in the under 3% range. Property prices rose about 40% amid rife fear of missing out.

The latest inflation figure is still a long way off the RBNZ’s target range of 1-3%.

Weakness in wage rises is a key the RBNZ needs to see before it can think about expressing some ease about the inflation outlook and to date there is no solid evidence the surge in migrant labour is causing any restraint on wages growth.

Independent economist Tony Alexander says it is not just that the 5.6% inflation rate is still too high, but when attempts are made to get a feel for what inflation is doing without special factors, he still sees an excessive rate of price increases in place.

Kiwibank chief economist Jarrod Kerr says inflation falling from the sevens to fives is a big psychological shift. He expects inflation to be in the fours by the end of the year. “Price setting, especially wage setting will be moderated in response. We are heading in the right direction and wage negotiations should be less heated.

Tags: OCR forecasts

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