Asset prices and spending going nowhere

Falling interest rates might not be sufficient to boost spending, the BNZ says.

Monday, July 7th 2025, 10:34AM

by Sally Lindsay

Research head Stepen Toplis says Stats NZ’s recent quarterly update on the income, savings, assets liabilities of the household sector, while a tad experimental, is a great insight into the direction of change.

There is little doubt declining mortgage interest rates are reducing the pressure on the finances of those that have
debt.

Interest paid in the March quarter 2025 was 3.5% below the same quarter a year earlier. And interest as a percentage of disposable income has fallen from 5.4% to 4.9%.

But household net wealth has flatlined since mid 2021. House values are the key component of this.

While changes in net wealth do not impact cash flows they do affect the desire and capacity to borrow.

Toplis says there is clear evidence that wealth effects have a big influence on consumer spending.

“With asset prices going nowhere fast it shouldn’t be a great surprise that household spending is doing
likewise.”

The good news, he says, is that dropping interest rates are just the start with much of the increase seen since the second half of 2021 about to be wiped out.

“But there is a significant chunk of the population that doesn’t have any debt, many of whom rely on interest income for their day-to-day spending. Believe it or not, the income accruing to these folk has dropped by more than the reduction in the amount paid.”

He says the net effect has lowered the quantum of money available for the household sector to spend.

While the BNZ doesn’t have the data to prove or disprove its assertions, it thinks the people who are getting the interest rate relief are the ones with a higher marginal propensity to consume. So, the net impact on household spending will still be positive.

Retired people who depend on interest income will not be enjoying the easing in monetary conditions.

Often lower interest rates boost consumer sentiment by raising asset prices, Toplis says.

“We believe lower rates are supporting the housing market in that turnover is up and house prices appear to have stopped falling.

“But at this stage, house prices are not on a firm upward trend and they certainly weren’t when Stats NZ March Quarter data were put together.”

He says it’s not just the wealth effect that’s problematic. Real disposable incomes, as measured in these data, are going backwards slightly.

“Unless either employment rises quickly, wages accelerate, or inflation falls then real disposable incomes will not jump any time soon.”

BNZ is forecasting broadly flat employment, a drop in wage growth and a rise in the inflation rate for the next
few quarters – none of which are particularly helpful, Toplis says.

One way that spending can be supported is if households utilise accumulated saving.

While New Zealanders became net savers during Covid, he says old habits have returned and most of those savings have been spent. Savings crumbling

“Putting all this together, it becomes increasingly apparent just why the retail sector has been struggling.”

He says monetary easing and the strong income gains accruing to New Zealand’s primary sector will support retail spending, but NZ Stats data are a salient reminder that we shouldn’t expect a resurgence in activity any time soon.

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