Not only are prices rising, but our overall wealth is also diminishing. According to data from Stats NZ, New Zealanders’ combined household net wealth dropped by $33.5 billion or 1.5% in the June quarter. This decline marks the sixth consecutive quarter of decreasing wealth, resulting in a total decline of $255.2 billion since the peak in December 2021.
Back in December 2021, our collective wealth amounted to $2432 billion, but now it stands at $2177 billion. The primary contributors to this decline in the most recent quarter were the devaluation of New Zealanders’ shares and investment funds, as well as the decreasing value of owner-occupied properties. Falling house prices have been a driving force behind this wealth decline since September 2022, with a $2.5 billion increase in household loans further eroding wealth.
Equity and investment fund shares suffered a significant decline of $19.9 billion, a decrease of 2.2% in the June quarter. This was partially offset by a $3.3 billion rise in currency and deposits, as well as a $2.6 billion increase in insurance and pensions.
Jarrod Kerr, the chief economist at Kiwibank, anticipates that this downward trend will persist for some time, attributing it to market volatility and uncertainty. He believes that it will only change when central banks cease raising interest rates, which will likely boost the value of equities.
However, the property market in New Zealand has already experienced a turning point, significantly impacting the wealth of New Zealanders. The discussion around Kiwi wealth predominantly revolves around house prices, in contrast to the United States, where households have a more diverse portfolio of assets, including equities. In New Zealand, the predominant focus is on property ownership, with a strong desire to own one’s own home and, subsequently, invest in additional properties.
Notably, the housing market appears to have reached its low point around May, with both activity and prices gradually increasing since then. While there hasn’t been a sudden surge, there has been a consistent upward trend in activity and prices over the last four months. The current season, encompassing spring and summer, typically sees heightened housing activity, and reports from mortgage brokers and mobile mortgage managers suggest a sharp upturn in confidence and expectations. Consequently, it is more likely that house prices will rise over the next year rather than fall.
Economists like ANZ’s Miles Workman argue that, given the overinflated state of the housing market in 2020 and 2021, a dip in net worth due to a correction in house prices is not necessarily negative. In fact, it may be beneficial if it means that housing-related risks to the financial system and the broader economy are now more contained. Workman suggests that now that the housing market has stabilized, there is room for improvement in New Zealand’s overall financial health.