Financial assets finally gaining faster than housing

For the first time in more than six years, the annual increase in housing assets (10.4%) was outstripped by gains in financial assets (10.6%).

Thursday, March 15th 2007, 11:49AM

by The Landlord

Nevertheless, housing appreciation remains the biggest contributor to growth in household net worth; which rose 3.8% in the December quarter, and 9.7% during the year.

Average household net worth increased $26,000 during the year to reach $352,200, Spicers Household Savings Indicators report shows.

Of the $66.8 billion increase in total assets, $52.4 billion was attributable to gains in the housing stock. This largely reflects households’ “love affair” with housing, Spicers says.

Approximately 78% of their assets are tied up in residential property, including both their homes and investment properties.

The annual growth rate of total net worth continues to slow, and this is largely attributable to the slowing pace of housing appreciation, says Spicers.

The 9.7% gain in net worth recorded in 2006 is significantly slower than 2005’s 15.3% rise and even slower than the dramatic 26.8% rise recorded in 2003.

Financial net worth increased 3.5% during the December quarter and 11.1% during the year; its biggest annual rise in almost 13 years.

Financial assets were boosted during the year by a $9.6 billion inflow into bank deposits (the biggest annual increase on record) and a $2.7 billion (20.2%) increase in private shareholdings.

The introduction of two major incentives to encourage Kiwis to save – the changes to the tax on investments and the imminent introduction of KiwiSaver in July – will contribute to the future growth of financial assets, Spicers predicts.

Despite the gains being made by financial assets relative to housing during the last year, housing is by no means dying, Spicers’ report shows. “In fact, much to the frustration of the Reserve Bank, the housing market has gathered fresh momentum after a soft patch last winter,” it says.

Housing stock value increased an estimated 3.8% during the December quarter, up from 2.5% the previous quarter and 1.0% in the June quarter. “However, given the recent rise in the Official Cash Rate, this renewed momentum is unlikely to be sustained.”

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