Rising riches are tipped to take a hit

New Zealanders are still getting richer, but their net worth could take a hit over the next two years as the wealth effect from rapidly rising house prices fades, says fund manager Spicers.

The firm's latest Household Savings Indicators survey shows households' average net worth rose by 2.5 per cent, or $7000, to $341,200 in the three months to June, the smallest quarterly increase in two years.

Rozanna Wozniak, chief economist for Spicers' fund manager Arcus, said while the gains in net worth over the quarter were solid, they were clearly slowing in tandem with house prices which have been the largest driver of rising wealth.

Wozniak raised concerns that in the year to June, house-price increases had slowed to the point that households' net assets were growing at a slower pace than their rising debt.

The value of housing stock was up 2.5 per cent for the June quarter and 14 per cent for the year, while financial assets, which excludes housing, were up 3.3 per cent and 8.2 per cent. That meant total assets rose by 12.8 per cent to $678 billion over the year and total debt rose 13.9 per cent to $146.3 billion.

"If house-price growth continues to slow and debt levels keep rising at the same rate, we might find that the huge gains in net worth that we have enjoyed in the last few years are gradually eroded. If house price growth stalls or turns negative, this erosion will accelerate," said Wozniak.

"I wouldn't be surprised if, in the next couple of years, we see a couple of negative quarters come through the Household Savings Indicators, especially if we see that double-sided effect where house-price gains briefly turn negative but debt continues to grow."

Meanwhile, yesterday's data also indicated the slowing housing market had affected household wealth earlier than previously thought.

Three months ago Spicers reported the March quarter increase in net worth as a whopping 4.9 per cent but yesterday revised that to just 2.7 per cent after receiving final house price data from Quotable Value.

Apart from the impact of adverse economic conditions such as higher interest rates, Wozniak said this year's census data pointed toward an apparent excess of housing stock in some areas of the country that could weigh on overall house prices.

Although some of the extra houses would be holiday homes or second houses, struggling investors and developers could be forced to offload homes at relatively low prices.

"This could test the sustainability of the rapid gains in house prices that we have seen over recent years. We're going to go through a period where at the very least household wealth goes up at much slower rates than it has done over the last few years."

Consumers should begin "a little bit more belt tightening," she said.

"Businesses are aware of the tougher economic conditions and they've started to adjust their behaviour whereas consumers have not adjusted to any great extent at all."

But there were some signs consumers might be taking notice. For the first time in two years financial net worth rose faster than housing - up by 3.3 per cent over the quarter, driven largely by the biggest ever quarterly inflow into banks of $3.8 billion.

"This shift could reflect a concern about the tough economic conditions that lie ahead, showing a desire to knuckle down and a preference for 'safe assets' such as bank deposits over more risky assets."


SPICERS HOUSEHOLD SAVINGS INDICATORS

* Average net household wealth is $341,200.

* Household net worth rose by $7000 during the June quarter and $33,340 for the June year.

* The value of housing stock rose by 2.5 per cent over the quarter.

* Financial net worth including savings and investments rose 3.3 per cent for the quarter and 8.2 per cent for the year.