There have been many reports recently stating that “experts” are seeing a turnaround in several segments of both the commercial and residential real estate markets here in New Zealand. But I find it hard to see this and put credibility on these reports. I justify this by saying there is no other crux that is more closely tied to the fundamentals of real estate than employment and there is no indication that we are close to seeing a peak in unemployment.
I say this because yesterday I had to do something I am really not proud of but I had to seek some financial assistance to get me through the times that most of us are experiencing. During the time I was at the IRD and other various offices talking to people there was a very clear trend happening. There is very little work out there and there are a lot of people seeking the same advise and help I was asking for. My bank manager told me that there were hundreds of people just from our branch on a 3 month mortgage holiday at the moment. Let’s hope those people can keep their homes once they come off.
We are presently at an unemployment rate of 5% nationally and economists estimate that there will be a peak of 9%-10% to as much as 11% before the trend reverses.
The national unemployment rate of 5% from the March quarter 2009 is a result of employers cutting more jobs to counter the lower sales and revenue being generated. This is the highest unemployment rate that this nation has seen since late 2003. There have been a huge amount of jobs lost in the last 12 months and it’s not looking to stop.
Redundancy or job loss seriously impacts upon a families ability to meet their financial obligations. Buying food, paying utility bills, covering personal debt and making mortgage repayments represents a real and lasting challenge for those that don’t have adequate unemployment insurance in place.
People that were struggling with debt when they were in work are unlikely to find that losing their job helps their plight. The lack of a regular income also means that negotiating a suitable monthly repayment figure with creditors is vastly more difficult for cash-strapped families. Some debt solutions are also no longer available for struggling families.
Rising unemployment doesn’t just affect those that have lost their job, it also affects peoples’ ability to negotiate wages or secure a better employment package when they find a new job. Those that are actually in work fear for their own job security; employers realise that the bargaining power of their employees’ is reduced and are better placed to control wage inflation.
Since the start of the recession, redundancies and job cuts been lost across many sectors from retail to manufacturing, but the hardest hit industries for job loss has been finance, construction, tourism and real estate agents.
The effects of the credit crunch are flowing through to the real economy in New Zealand NOW and this meant 1000 people a week were signing up for the unemployment benefit, half of them in Auckland.
As unemployment rises, people who have either lost their job or fear losing their job do not move to a larger rental apartment and do not move from a rental unit to purchase a residence whether it is a single family home, or a matured family or an individual. People tend to stay at home longer and save money in a recession. People tend not to move around and spend money moving unnecessarily. This is one of the big reasons we are seeing a housing shortage in some areas of the country.
There are still buyers out there wanting to buy. Not in huge numbers but just enough to keep agents busy. But as I just said there is a shortage of houses for sale. It is easy to see how the fundamentals of Real Estate are tied into the unemployment ratio. As we see higher unemployment in New Zealand over this recession and winter we will see a slow Real Estate Market with both slow sales and possibly decreasing values as mortgage sales and desperate sellers compete.
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Seasonally adjusted
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March 2009 quarter
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Quarterly change
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Annual change
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| Unemployment rate |
5.0%
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+0.3
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+1.2
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| Unemployed |
114,000
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+6.1%
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+34.2%
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| Employed |
2,181,000
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-1.2%
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+0.8%
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| Not in the labour force |
1,062,000
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+2.5%
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-1.1%
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| Labour force participation rate |
68.4%
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-0.7
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+0.7%
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June 23 2009 | The Market | 2 Comments »
Our Housing marketis in worse shape than Australia’s but is also likely to avoid as deep a correction as in the U.S. and Europe. The Reserve Bank of New Zealand has cut 575bp since July 2008 to 2.5% in April 2009 but longer-term, fixed mortgage rates have recently begun to rise again due to expectations of a quick recovery and higher interest rates. Fiscal policy has been laissez-faire towards the recession, opting merely for tax cuts as the government would rather not stand in the way of the economy’s structural adjustment. With housing assets 5.7 times the household disposable income, New Zealand property markets are even more leveraged than their U.S. counterparts.
House prices fell 8% in 2008 and are down 9.2% y/y as of April 2009. Some analysts believe the housing market will bottom on an annual basis in 2009. The housing market has already bottomed on a month-over-month basis, with the median price rising from $325,000 in January 2009 to $340,000 in April.
Immigration has revived housing demand and sales have been strongest in the low-end segment thanks to increased affordability. However, new building starts and new home sales remain below the boom levels of 2004 and will likely remain so due to credit constraints, rising unemployment and sluggish economic growth in the year ahead.
To have a detailed look at what has been said about the rest of the world and the state of their housing markets visit this site.
Source: RGE
May 28 2009 | The Market | No Comments »
New Zealands Official Cash Rate has been cut again to 2.5% which is a further sign that the Reserve Bank is trying to stimulate the economy. Dr Alan Bollard this morning said to the people that he sees the Official Cash Rate being low for around the next 18 months as the economy is finding its place and evening out.
Bollard says “We expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters,” he went on to say; “The world economy deteriorated further than expected in the first quarter of 2009. While monetary and fiscal policy responses in many countries have been substantial and there are some signs of stabilisation in some countries, we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and e
xtent of global recovery remain highly uncertain.”
The OCR is the lowest it has been for 10 years and is now at a record low for New Zealand. Bollard wants to see banks passing on this cut to the consumer. The last OCR cut saw an increase in the 5 year interest rates which didnt impress many of the NEw Zealand public but due to the high cost of borrowing from overseas the banks couldnt sustain the low rate on the 5 year loans. To the right is the graph of the OCR trend in the previous 5 years; picture supplied by Christoph Lukasser
Westpac Bank has moved quickly in response to the OCR cut, saying it was cutting its 6 month home loan rates by 0.4 per cent. This brings its 6 month home loan rate to 5.39 per cent, due to come into effect this Friday. As with most times when the OCR is cut our New Zealand Dollar dropped again this time The New Zealand dollar plunged nearly 1cagainst the American Dollar from US57.34c to US$56.46c
Bollard went on to give a little optimism to the markets by saying; “We expect the large decline in the OCR over the past year to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing. This, together with the stimulus from fiscal policy, will act to support the New Zealand economy and eventually see activity trough and pick up thereafter. However, the scale of the global financial crisis and domestic adjustments underway are such that it is likely to be some time before econ
omic activity returns to robust and healthy levels.”
In my view there is still a long bumpy road ahead for the economy in New Zealand and around the world. The Swine Flu has not helped matters at all with already Pork exports stopped, tourists from around the world cancelling their trips and New Zealanders deciding not to travel abroad. This will cause the econonomy to retract even further than it already has and with winter on its way will hurt many businesses in the pocket. With Bollard saying the OCR will stay low for around 18 months will give businesses and people confidence of knowing what levels to look forward into, espessially over the summer of 09/10 where many businesses including mine are going to have to plan ahead for and try and grow.
It will be rather interesting to see how the New Zealand economy is going to fear in the next 6 months over the winter period with all the things happenoing in the world at the moment. What do you feel will happen?
April 30 2009 | Buyers and The Market | 1 Comment »
Again the Reserve Bank of New Zealand is dropping our Official Cash rate amid the world and New Zealand Economy falling as credit becomes tight and people stop spending money like they have in the past few years. The new OCR rate of 3% is a 50 bias point drop on what it was at 3.5%. The total drop in the past two months has been 2%. But is this enough to stimulate our economy enough to give it the spur of life that it needs.
Reserve Bank Governor Alan Bollard said: “The world economy deteriorated very rapidly late last year, amid ongoing losses and extreme volatility in international financial markets. While monetary and fiscal policy responses in many countries have been substantial we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and extent of global recovery remain highly uncertain.
One point I would like to note which seems interesting to me is that as you can see by the picture of the NZD against the USD as soon as the OCR rate cut was announced we saw about a half a cent rise in its value and this value has stayed constant all day. In my view this is a good sign to look at as this means that investors have got some confidence in our dollar and its performance. Also as a side note we saw fuel drop in price by .5c a liter today at 12pm which will make everyone a little more happy.
As we are at the moment we are coming into winter which is traditionally the time when people start to wind down on the spending and save money for the summer vacations and the likes of christmas and new year parties etc. The winter sees less people moving around as well because generally most peole have settled into their new jobs and the children are into their school routine and people tend to sit down and not do as much. This year has seen many people get into that routine alot earlier and many are going to find this winter very difficult.
Although sales volume for Real Estate was the highest in about a year at just over 5200 sales recorded for the 28 days in Feburary it was still the lowest recorded sales volume for 10 years. This gives us a clear indication that people are not buying at the moment. I do believe though that the interest rate drops from the OCR are going to give the housing market a boost as there are some great oportunities out there to buy if you have the equity to borrow you will most likely be able to find a property out there that will return a positive cash flow now.
I myself have been going around Christchurch doing a small survey and talking to almost every business owner in dairies, supermarkets, fish and chip shops etc etc and generally the same message is coming accross is that business is tight. People are not spending money but there is a trend for what people are spending more money on. The trend seems to be that people are spending more money in the stores where they can get their entertainment and take it home. So instead of people going out for dinner, going to the movies and going to the bars it seems people are buying those items from video stores and bottle stores and are taking those back home and entertaining at home. This is one way to save money.
It will be very interesting to see how much of this rate cut will be passed to the consumer over the next few weeks.
March 12 2009 | Uncategorized | 2 Comments »
PRINT THIS OUT AND KEEP! I have had too many people emailing me over the past few weeks asking about budgeting and there seems to be hundreds of people searching on how to budget and how to save money etc. There seems to be a trend and people want to know how to deal with the banks. So I have decided to give away a whole chapter of an e-course I developed about a year ago that I sell on the internet to my subscribers list but I think there is a need for it and here you can have it for nothing.
Traditionally in New Zealand we have had savings banks (designed to cater mainly for the public’s everyday banking) and commercial banks (designed to handle commercial businesses and international transactions). The distinction between the banks has become almost non-existent as different banks merged and competition has meant they have to do everything.
Banks consider themselves a profit centre and so make no apologies for making a profit when looking after your money. They are very aggressive when charging fees and marketing their “add on” sales such as insurance’s and bank services. In some banks, these “add on” sales can make up 25% of their profit.
Banks are also becoming more technical utilising electronic means of paying (such as EFTPOS) and transferring money between accounts and to pay creditors (such as telephone transfers). Whichever way we look at it, banks are becoming less personal all the time and only seem interested in you if they can make money from you through fees or additional products.
Bank managers have a great deal of autonomy and how you are treated in a branch can be largely determined by the relationship you have with the key people in it. If you are getting on well with the loans officer or you have an understanding bank manager then that person is worth keeping in contact with – even if they change branches.
Within the rules laid down for business by the banks the bank manager has a great deal of discretion when it comes to applying those rules on things such as overdrafts, clearing cheques quickly or being more lenient when you are a few dollars short of making an automatic payment work.
FEES
It is not at all unusual for the average person to be faced with $240 worth of fees per annum! Check your own bank charges – you could be surprised.
So how do we avoid fees? As a rule Savings and Loans Societies and Credit Unions have less fees but offer less services.
When you conduct a transaction at a bank counter, as many as 17 people handle that piece of paper before it is finally filed and forgotten. This is why transactions by staff members are so much more expensive than using the electronic and automated systems. Here are some do’s and don’ts:
Do’s:
· Use the ATM machines whenever possible for less fees.
· Use EFTPOS transactions and get cash out while buying goods – two transactions at once saves fees.
· Use automatic payments or direct debits when possible.
· Utilise telephone transfers to move money between accounts and to get account balances.
· Use telephone transfers to pay bills.
· Ensure there is money to action all your automatic payments as the charges from the bank if you fail to leave sufficient money in your account are often $25 every time.
Don’ts:
· Make cash withdrawals at the bank.
· Make cash deposits at the bank.
· Use any teller transaction at all such as getting printouts or moving money from one account to another.
· Leave insufficient funds to cover your automatic payments and telephone transfers. This will incur fees at the bank and penalty interest on loans.
In summary, avoid using personal services whenever possible and make maximum use of electronic and automated systems.
The reality is the banks will be very hard on any small customer that does not keep their account in good order. If you talk to a bank manager they will tell you that if you bounce too many cheques or fail to let too many automatic payments fire then they will happily close your account down and see you on your way.
WHAT TYPE OF ACCOUNTS SHOULD YOU USE?
· Current / cheque accounts – the bank has designed these accounts to handle the majority of your transactions and money movements.
Fees charged are on a “per transaction” basis to reflect the high usage on the account. Interest earned on this account is usually low.
These accounts are ideally suited for telephone transfers, automatic payments, direct debits and other forms of money movement activity.
· Ordinary savings accounts – these accounts will pay more interest than a current/cheque account as they are designed for savings but they will also allow a fair amount of activity on the account e.g. telephone transfers, automatic payments, cash movements in and out.
As a result, you still get charged a reasonably hefty fee per month and possibly a higher fee per transaction to discourage you from moving your money in and out too often.
These are very useful accounts if you are saving money for things such as car repairs, house maintenance, school fees, and other short term saving goals.
· Incentive savers – these savings accounts are designed to reward you for putting money in but not taking money out. For example, if you put money in during a month but make no withdrawals they will often pay you a higher interest rate for that month. If you take your money out, you will often get far less or no interest paid that month.
Also to discourage you from moving your money, the transaction fees are highest on incentive savers while monthly account fees are often very low.
This account is excellent if you are saving for a holiday in a couple of year’s time, a deposit on a house or any long term savings project.
SETTING UP YOUR BANK ACCOUNTS
When we set up bank accounts we are trying to achieve certain things:
· To set them up in such a way that our bills are paid as a natural progression of our bank accounts and not something we have to remember all the time.
· To minimise bank fees and costs.
Banks will often ask you to have a sum of money when you open a bank account and this can be difficult to achieve sometimes. You could take your money from savings to start an account or borrow a small amount on a credit card or from a friend. The interest is minimal if you hand the money back as soon as you start the account and you can save a lot of money if you become more efficient in the way you handle your bill paying.
You could reduce all personal expenditure for a short period of time to get the money together or ask the people you owe money to for a period of grace and put that extra money aside.
1. All income should go into one savings account. Do not let yourself be paid in cash if you can possibly help it as cash in the hand is easily spent. If all the money goes to the savings account then you will minimise money “leaking” out of our system.
2. This savings account will end up holding all our money for:
· Extra expenses.
· Holidays and gift savings.
· Extra savings.
· $2000 as a minimum buffer.
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Transfers per pay period
$………………………… $…………………..
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Savings Account
# 2
For allowances
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Cheque Account
# 1
For committed expenses
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Top up $………………. Top up $……………….
(comfort level) (to cover bank fees and
keep account in credit)
The reason we have this money going into a savings account is that when we take money out for our allowances and committed expenses, whatever is left will naturally start going towards savings – this makes savings a lot easier.
Note – there is no EFTPOS or ATM access on the first savings account or the cheque account to stop us taking money from the wrong place.
3. Every pay period we must transfer the right amount into our second savings account for allowances so that we cannot spend any more than we are allowed, as there simply isn’t anymore to spend. While we call this a savings account, you should find an account that costs the least amount possible to operate.
4. Every pay period we must transfer the right amount into our cheque account to cover our committed expenses. We put this amount in here to make sure no more is spent on our committed expenses than is necessary. By putting a limit on these expenses we have to make sure we stick to our budget.
5. Both the second savings account and the cheque account will need a sum of money transferred to cover things such as bank fees and to top up if we do overspend. Every pay period we must make sure we put in the extra we have planned in our budget to cover such costs.
6. In both savings account number 2 and the cheque account we need to have a minimum level of money to ensure that we never overdraw these accounts and fail to meet our commitments. If our automatic payments and commitments are not met then the extra bank fees (often as high as $25 for an automatic payment that doesn’t work) will soon make our budget very hard to achieve.
The number two savings account might have an amount of, say, $100 in it to make sure that we never run out of money and bank fees don’t overdraw the account. Use this $100 as your minimum balance and make sure you never go below this.
The Cheque account also needs an extra amount in there to cover fees, as this is the most active account we have. You will also have to make sure that there is extra in there to accommodate the fact that you may not have a full payment ready to go out once a month. For example, you might have to pay $100 a month on a hire purchase.
When we did our calculations we multiplied $100 a month x 12 to get an annual figure. In this case it is $1200.
We then divided this by 26 to find out how much of our fortnightly pay has to go into the account to meet that. In this case, it is $47.50 a fortnight.
If you only have 2 pay periods until your monthly automatic payment is due then you will have a total of $95.00 in the account – this is obviously not enough. We need to put a little more in right at the beginning to make sure that there is enough there to take into account the fact that there are 4.3 weeks in a month.
Likewise, the cost of setting up automatic payments etc. is something else the bank will deduct from the account so that if we are setting up our bank account system and we are setting up 4 or 5 automatic payments we must allow money for the bank charges. If we do not, our whole system will fail right from the beginning.
It is worth noting that automatic payments will come out in a certain order. Some banks pay the largest first. Others will pay them in the order they are loaded.
This means if you move into a new flat, for example, if you load new automatic payments for your rent, it will be the last thing paid when it should be the first. Ask the bank to rearrange the order.
7. What if you do not have a lump sum or you simply find it too difficult to calculate the extra amount that you need to make sure your bank accounts stay in order?
We can change the amount we put aside each week or fortnight towards our payments to make sure there is always a little more going in than is actually necessary. When we calculated how to work out our weekly and fortnightly payments before we used the following formula:
For weekly payments divide the annual amount by 52 – for example, $520 per annum divided by 52 = $10 per week.
For fortnightly payments we took the annual payment and divided it by 26. For example, $520 per annum divided by 26 = $20 per fortnight.
We can replace these two formulas with ones that give us a months payment every 4 weeks:
For the new weekly payment we divide the annual amount by 48. For example $520 per annum divided by 48 = $10.83 per week.
For fortnightly payments we will now divide the annual amount by 24. For example, $520 per annum divided by 24 = $21.67 a fortnight.
What this will do is make sure that you have the full months payment every four weeks. This means that you will always have enough money by the end of the month to pay all your bills. You will also build up an extra amount going into the accounts (1 month of extra bills) by the end of the year. This will help leave extra in the accounts for unexpected fees or forgotten payments and will mean that you are far less likely to miss any automated payments – why would you, you will actually have too much money in the account.
This way of calculating your weekly or fortnightly payments is an excellent way of simplifying your budget down and making if far more likely to work because of the extra amounts going into the accounts.
The problem with this way of doing things is that if your budget is so tight that every cent counts, you may well not be able to put the extra small amounts aside. You can’t move money to accounts if you simply don’t have it to move!
If you have got the extra money then this is a very good way of helping your budget stay on track and is recommended highly.
8. We have used two savings accounts and one cheque account because savings accounts have less fees and so they are more economical to run. Most banks will not let you have automatic payments coming out regularly from a savings account and so you will need one cheque account to do this.
If the bank does allow automatic payments from a savings account then you can combine savings account #1 and cheque account #1 to save more fees. This also has the advantage of increasing the amount you have in savings because every cent not spent stays in your savings account automatically.
The disadvantage of combining the two accounts is that you have to be very careful that you do not take too much of your savings out each time you withdraw money – you could be spending your automatic payment money.
People often prefer to have their income split between two different accounts (or even two different banks) to make sure the savings and/or automatic payment account is truly out of sight and out of mind. It is a good idea.
9. By setting the system up this way it doesn’t matter whether your automatic payments and hire purchase payments etc. come out monthly and you are paid fortnightly, this system will accommodate this difference.
You must remember that if you finish paying off a hire purchase or put another commitment on that you have to change the transfers from the first savings account to the cheque account to make sure that the right amount is being transferred. If you do not, you will run short of money or have too much in the wrong place.
If you succeed in paying a bill off and therefore have extra money you can start to leave extra money in the savings account or keep the money going to the cheque account and pay more off one of your other bills. Either way, you will have to remember to change the automatic payments that are in place.
10. We have all your pay going into the savings account at first because it means that every cent you don’t spend on allowances and committed expenses is saved. This is how you will eventually manage to become more financially independent.
Check your calculations every two or three months to make sure that everything is running smoothly – review your systems regularly. If you find that a regular commitment did not get paid on time – find out why because it may be an error that will happen again.
DIRECT DEBIT VERSUS AUTOMATIC PAYMENTS
An Automatic Payment is a more traditional form of making a payment automatically. Once it is set up it will keep going until an expiry date or until you cancel it.
The advantage is that you have control over it and can alter or stop it whenever you want. If you miss a payment it will often fire next attempt.
The disadvantage is that if your payment changes (for example a change in an insurance policy premium) you must remember to alter the payment or you soon fall behind on your commitments.
With a Direct Debit only the company that puts it in place can stop it – you cannot, even though it is your account. (In truth some banks will do it for you but they are not meant to!)
Organisations like Insurance Companies use direct debits because they do not need to get a new authority signed every year. This means instead of chasing clients and overdue payments they simply write you a letter and inform you of the new payment. They adjust the schedule sent to the bank and take the new amount from your account.
They can also take missed payments more easily by requesting a double payment from the bank the next month.
They usually simply send you a letter and “tell you” what they will do if you do not contact them. Most people do not bother to contact them.
There is nothing wrong with direct debits. It is simply that people do not like feeling they are not in control and do not like having others tell them how much is going to come out of their bank account.
BANK LOANS
Currently, banks are moving towards using either “blue chip” security (mortgages and term deposits) or unsecured lending. They believe that they will either give a good interest rate if the security is solid or take their chances on an unsecured loan but charge a lot more money. The difference in interest rate between a secured loan and an unsecured loan is often about 3%.
Loan Requirements
All banks have criteria that you must fulfil if you are to get a loan from them. These are:
- A good credit rating. The cleaner your credit rating is the easier it will be for you to get a loan.
- If you have had a “black mark” on your credit rating the bank will still consider your application if that credit has been paid off and this shows on a credit check. If you have been a bad risk to someone else and you still owe them money they will not consider your loan any further.
- You will be asked to explain how the bad credit rating occurred and if the story is reasonable and the loan is not too large they may well consider your application.
- Sufficient disposable income. Banks will usually use two criteria to judge whether you have enough money to pay for a loan:
Ø They will allow you 35% of your gross wage before tax towards your fixed commitments. For example, if you earn $1000 a fortnight they would allow $350 a fortnight towards fixed commitments.
A fixed commitment is an obligation you have to pay money on a regular basis and will usually be either a loan of some sort (such as a credit card, hire purchase, store card) or an obligation (such as rent). If you do not pay your fixed commitment then someone will bring it to your attention and act to obtain the money from you.
Included in this fixed commitment will be the amount that you will be paying for the loan that you are currently applying for.
Ø You must have a “net surplus” after you have paid all your fixed commitments. Banks will use an indicator such as $800 a month net surplus after all fixed commitments for an individual, $1300 per month for a couple plus $120 for every child.
For example: if Joe earns $2000 a month the bank will allow him 35% of that towards fixed commitments – this is $700 a month.
If Joe is currently paying $250 a month in board and a credit card, then $750 less $250 means the bank will allow $500 towards future loans. If Joe’s loan is $300 a month, then he will meet this requirement.
Joe must also have $800 surplus funds when we take the tax and the fixed commitments off his $2000 a month. If Joe’s tax is $400 a month and his fixed commitments are $550 ($250 board and a credit card + $300 loan) then we can see that Joe also meets this criteria. $2000 – $400 tax – $550 fixed commitments = $1150 surplus per month.
- How long you have had accounts with the bank and how you have conducted those accounts (e.g. have they been overdrawn, are you late with your payments, are they always chasing you for arrears) also play a major part in whether they will lend you the money or not.
- The security you offer can make a difference. If it is good security then it will make it easier for the bank to lend you money.
- All banks will charge a minimum fee of, say, $250 for a loan but can charge as much as 1% of the amount that you borrow.
SECURED LOANS
Banks look for mortgages and term deposits as their best form of security. They will also consider things such as shares, insurance policies and personal guarantees but they will modify the rate to accommodate for the fact that they don’t consider this class of security to be as good. As a general rule, banks will no longer use motor vehicles as security.
Advantages of a secured loan are:
- A better interest rate – probably 3% lower than unsecured lending.
- It is easier for the bank manager to lend you money if it is secured.
- If you have security in place with the bank (e.g. a mortgage) then it will also make future loans easier to obtain.
- Fees are higher and you do need to have the security.
On the whole banks are more comfortable with secured lending because they feel that if the customer has something to lose (such as a house), they are less likely to default on the loan. They will be more committed.
UNSECURED LOANS
Banks are quite happy to take the risk on unsecured lending because they charge a higher interest rate. These days it is cheaper to sue the few people who default on their loan than it is to put securities on every loan. Unsecured lending can include credit cards, overdrafts and unsecured loans.
If you are new at the bank you will often find a $200 overdraft or credit card is an automatic part of opening an account at the bank. Getting more unsecured lending will rely very heavily on how long you have been with the bank, how much money you have going into the bank and how you have conducted your accounts in the past.
A lot of bank managers will start with a smaller limit such as $500 and work up as you prove yourself but will set maximums depending on your income and the amount of money coming into the bank. For example, you may find that the bank will not lend more than 10% of your income or that they will not give you more in the way of an overdraft than you have money coming in every pay day – this means you clear your overdraft every pay day.
Advantages of unsecured lending:
- Fees are often less, as you do not have to pay for things such as mortgage documentation and lawyers fees.
- You can still obtain money when you have no security to offer.
- Unsecured lending is often for a smaller amount and therefore you have less to pay back.
- If you default on the loan you will not lose any of your personal possessions – although you will have a bad credit rating and possibly be taken to the debt collectors and courts if needed.
It is not unusual for banks to insist that you have some form of risk protection such as life cover or income protection if they are doing an unsecured loan. The reason for this is that they have no car, house or term deposit to cash in should the loan fail if you were to die or become unable to work. What they do is cover themselves with life insurance policies and income protection plans.
From a legal point of view they cannot insist that you have this insurance to cover the loan. Unfortunately, most banks will not lend you the money if you decide you do not want to put this sort of cover on a loan. As a result, while they cannot legally insist that you have this cover they can decline your loan if you don’t take it.
Banks often use a point scoring system to determine how much they will lend you. They look at a number of areas such as:
- How long you have lived at your last address?
- How long you have been in your last jobs?
- Have you had loans before? How did they go?
- Are you married?
- Is your credit rating good?
They score you on each area, the less points the better. They then have a chart they rate you against and this says how much they can lend you.
For example, if you have had 3 jobs in 2 years, have moved 4 times, no stable relationship and already defaulted on a loan – you will not get much of a loan if any loan at all.
If you have held a job for 5 years, lived at the same address for over 7 and are married and your previous loans have run well, the bank will score a loan application more kindly.
Banks will lend $15,000 or more unsecured these days.
Banks often score you on a points system to see how much unsecured lending you can have. The lower the score, the better.
For example, if you are in a rental property, are an unemployed teenager with bad credit and never saved any money with the bank, you would score highly.
If you owned your own home and were happily married in your late 30’s with 2 children and had all you wages deposited along with regular savings, you obviously have a better (lower) score and will receive more credit.
If you have just changed jobs or houses but been in the previous one for a long period of time, make sure you let the bank officer know as this effects the score.
CREDIT CARDS
Credit cards have got more people into trouble then any other form of lending. They are the most expensive form of lending with interest rates often in the 20% range and they are designed to trap you into using your credit card right up to the limit and leaving it there.
In New Zealand, more than 60% of people who have a credit card always have it at the maximum limit. If you cannot control your spending then you are better to apply for overdrafts and small loans to make sure you do not over commit yourself. It can be cheaper in the long run.
If you buy goods on your credit card then you will have up to 55 days to pay the card off completely before incurring any interest. If you only pay the minimum 5% each month it can take 7 years to pay off and you will pay 3.5 times what you spent.
If you get a cash advance on your credit card then you will pay interest from the day that you took the money off your credit card. There are some advantages:
- You pay approximately $20 a year as an administration fee and you do not have a $250 up front administration fee as you do for a loan.
- Once you have a credit card limit you can use it repeatedly without having to reapply for further funds from the bank.
If you lose a credit card (or cheque book) report it straight away and you will probably not be responsible for fraudulent use (except perhaps the first $50 or so).
If you find a card missing and do not report it, you could have to pay some or all of the fraudulently taken funds.
HOW TO USE A CREDIT CARD TO YOUR BEST ADVANTAGE
Because of the lack of upfront fees, the credit card can be useful for small purchases/bills that you can pay off in a couple of pay days.
Credit cards tend to have a 55 day billing cycle. This means that you use your credit card and every 30 days you are sent a bill. You have 25 days to pay at least the minimum amount.
30 days plus 25 days + 55 days
If you clear the whole debt before the 55 days, you pay no interest. Plan your purchases so you buy on the first day of the billing cycle. This allows you the maximum time to pay the bill completely.
For example – you need to buy a $150 tyre for your car to get a warrant of fitness. Suppose your billing cycle is the 1st day of each month, then buy the tyre on the first of the month. If you are paid fortnightly you will have 3 paydays in the 55 day cycle. If you pay $50 each payday you will pay the card off before the minimum payment is due.
This means you will pay no interest because the card is paid off before the due day on day 55.
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This is the best way to use your card. If you have some money still owing on the 55th day you will usually only pay interest on the outstanding balance. But watch out if you do not clear the whole card – read their rules carefully.
WHAT ABOUT CAR LOANS?
Most banks are interested in doing small, unsecured loans (up to $5000) or large long term loans (such as mortgages) – they are not particularly interested in things such as car finance.
It is usual for banks to have a relationship with an established finance company that caters for the loans between $5000 and $25000 that are most common for car loans. For example, Westpac Bank owns AGC Finance: BNZ Bank has created BNZ Finance and National Bank has a working relationship with UDC Finance.
In this way, their clients are able to obtain car loans but they do not have to be party to an area of lending they do not want to be involved in. Banks rarely use cars for loans any more.
GUARANTORS
If someone acts as a guarantor on your behalf they have an equal amount of responsibility for the payment of the loan. It is very important that you make a guarantor aware of their responsibilities.
If you do not pay your loan and your guarantor has far more substantial assets (such as a house, car etc.) then the bank has the right to pursue the guarantor instead of you if they feel they have more chance of getting their money back.
Most banks will not take a guarantors unsecured signature and will require some sort of security from the guarantor to use on the loan.
A bank usually uses personal guarantees when a well-established customer asks the bank to allow a less established customer a loan facility.
For example, if mum and dad have been at a bank for 20 years and they ask the bank manager to help their son with a car loan, the bank may ask the parents to go guarantor on this first loan. The bank manager usually entertains this as a favour to the parents as he might not normally do this loan for a newcomer to the bank.
The majority of guarantor secured loans are not successful – if the bank will not lend you the money there could be a good reason. Many people who act as a guarantor swear they will never do so again!
PERSONAL GUARANTEES
Be very careful when a bank asks you to sign a personal guarantee. This is one of the most all-encompassing documents that you are ever likely to see!
On the front of a personal guarantee a bank normally puts a waiver that you are required to sign. This waiver says that you have foregone the opportunity to take that guarantee to your lawyer and have them look at it and give you advice. The reason this is here is because the guarantee is so complete that they are required to suggest you get legal advice.
It’s probably a good idea!
A bank will often ask a director of a company to sign a personal guarantee over the company’s undertakings. If the director does this, then they have no more protection from having a limited liability company.
A personal guarantee will not just guarantee the transaction that you signed it for (for example, the purchase of a car) but will mean that you have personally guaranteed every transaction and every loan on all your accounts from that point onwards – not just that first transaction. You could now be responsible for every overdraft, bounced cheque, or other loans, etc.
Not only that, but personal guarantees live on after your death. This means the bank has the right to pursue your estate for any money owing.
If you must sign a personal guarantee then ensure you get a letter from the bank saying that you can have that guarantee released upon the successful payment of the loan that they used it for. It is far too powerful and gives the bank too much control to just let it keep going.
Ideally, never sign them in the first place!
WHAT TO DO IF YOU LOSE A CHEQUE BOOK OR CARD
It is important to let the bank know as soon as you realise that your chequebook, credit card or ATM card have been lost or stolen.
Look up the bank in the phone book and ring their 0800 number (you can do this whether you have a telephone service or not) and report the loss.
If you report it straight away you will not be responsible for any fraudulent spending or use. This is because you have told them as soon as you know. This means that you have acted in the best way possible and done what you can to minimize the bank’s loss.
If you delay then you could well be responsible for any card usage or cheques written after you know about it.
For example, suppose you notice that you have lost your cheque book on the 10th, but do not ring the bank straight away thinking you might have it in the car or at home. Having looked, you ring the bank on the 12th. You could be responsible for any spending between the 10th and 12th because you are meant to ring them straight away so they can cancel the card or cheque book to minimise the loss.
The bank will ask you when you noticed the loss – It is important NOT to admit it was a couple of days ago. Always say that you have just noticed.
Thieves can be clever. They may do something like steal just your credit card but leave the rest of your wallet where they found it. This means they have the time between stealing your card and you noticing it to spend on it – it could be weeks before you notice!
BE CAREFUL
February 21 2009 | Uncategorized | 9 Comments »
Marketing, price, presentation
Christmas and New Year is over. We are pretty much now beginning the 2009 year off back into work. I was back at work today to a bombardment of paperwork to be completed. The joys of life. As I said in my previous posts I said 2009 will be a year for change and opportunity. In terms of the change I believe that it will be more important than ever to be at the front edge of what’s happening so you don’t get lost in old ways of technology so that you’re not left behind which could cost you money.
There will be in 2009 a very big change in focus when it comes to marketing. As the credit crunch and the recession take full effect during the early parts of the year there will be a focus to finding more effective ways to market products to reach the audience. And Real Estate will be no different. This to me will be a vitally important key component that is going to become more and more important this year than ever before. Where and How you market your property will be the defining point in the result you achieve when you try selling. Obviously there are other things and I will cover them here as well.
The medians to advertise your property are going to change. In my opinion the need for print media is going to become less and less effective. The cost vs. the result isn’t stacking up any more. Don’t get me wrong that if you put a good sized ad in the news paper you are going to get a lot of local views that day in the paper but it’s a one shot. With the time taking to sell increasing and the attention span of the reader gets smaller due to increased pressures at work and with the family. (Our lives aren’t getting any slower). I think the way to go moving on in the future will be for longer term and specific advertising. This will be online and longer term print media.
When I Say longer term print media I am talking about the local Real Estate book that gets published by either the company or a collective of companies. But I feel that if the company isn’t big enough and doesn’t hold enough listings that if it tries to make a publication of its own for the area it will not get as much coverage. This is only because people these days and I think more towards the future don’t want to have to look all over the place to look at their complete choices. The one stop shop type of model is going to please the consumer of tomorrow.
Realestate.co.nz which is now New Zealand’s leading online Real Estate portal has a dominating effect on Real Estate adverting online. But this is a good thing for the way we as a society want to go. This will enable the public to have the greatest and a more comprehensive search. The reason I say that these sites and publications are going to become more important to your marketing is that people will want to compare your property with what else is on the market. I know people have been doing this for ever but the thing that I think is going to change is that people don’t want to be searching around all over the place to find comparisons. Also with our ever fast passed world you need to be out in the spotlight for longer. This is the reason for the publication with a longer shelf life to be more important in your marketing.
Along with where you market your property in 2009 Price is going to be ever so important. The slow down and recession which started in 2008 and that is now coming with us in 2009 is going to make pricing harder than ever but more important than ever. The thing is that some people will price to the market and some wont. If you are one that hasn’t our going to help the ones who have sell their property.
During the comparing process the buyer goes through your property will simply be eliminated because it’s a higher price compared to what they could buy down the road. I can’t stress this enough. You MUST price the property competitively in today’s market if you want to sell. And you need to advertise that. Be firm on that price but make it known. If you’re going down the track of no priced marketing Auction is the best way to go but make sure you at least have a guideline and listen to the buyers feedback on where they believe the price could be. But be firm on a reasonable value because buyers in a buyer’s market are tough but do listen.
One thing I want to mention on this point is that I know of agents out there actively in the field who are buying listings. Telling the vendor at the point of sale that the property is X amount which is a little more than any other agent you had in has said. This tactic is going to kill your chances of selling and what’s more frustrating is its going become more stressful for you when it seems like your dropping your price constantly because your agent you have chosen says you need to meet the market. 2009 will not be a time to test the market. It’s a time to listen, be aggressive and achieve results.
Presentation is going to be important. When marketing your property online the only guide the buyer has to go by when in the comparison stage is the pictures. Which make having good quality photographs very very important. There are plenty of places to go to have photography done and there will be more I think coming soon to give you a good choice of photographs. But it’s also about the photos that you take. Some agents and people swear by having less photos so that a person enquiring will ring the agent for the enquiry. This is wrong. And even more wrong for a generation Y person. Generally what will happen is that people just want to see everything so that they fully know what to expect. Then they can compare and either eliminate or shortlist the property.
Once the property is shortlisted you then will find the buyer will contact the agent and find out more meaningful and maybe more specific information for their needs. If they don’t contact the agent directly they will go to the open home. If all the preparation work and everything is done right then you will hopefully get a contract on your property. But everything has to be right. In 2009 there will still be sales and probably more than in 2008 but the properties that sell will be priced right, marketed right and well presented. The combination of these factors and doing them right, especially been proactive about the marketing will ensure that you have a successful sale in 2009.
January 05 2009 | Sellers and The Market | 5 Comments »
Lets start 2009 with a little less bad news from the economys point of view. We are now starting to see some of the effects on the credit crunch and how it is affecting the spending habbits of New Zealanders. In November New Zealand household borrowing fell for the first time in 17 years. This is a direct result of the recession and global market turmoil.
The Reserve Bank of New Zealand said seasonally adjusted total household borrowing fell 0.1 percent to NZ$174.3 billion last month, after a 0.2 percent rise in October. It was the first monthly decrease since the records began in 1991.
This year has seen a marked slowdown with consumer spending falling sharply due to the high interest rates, food and petrol costs increases and a slowing housing market. We have been in a recession since the beginning of the 2008, and many forecasters believe the downturn will continue until the middle of 2009. But all is not bad news from all this slow down. In 2008 alone the Reserve Bank cut the OCR by 325 basis points. And is likely to fall further on January 29th when the RBNZ meet again.
It is interesting to see this data and look at the bigger picture. There is no doubt that 2009 if looking at these statistics will be a slow year for the economy as consumers spend less and have less to spend.
January 01 2009 | The Market | 1 Comment »
What’s in store for 2009.
Seems like everyone is giving their predictions for 2009. It also seems everyone has a different opinion. If you go down the street and ask someone what’s in store for 2009 every single person will give you a different response. Some people are positive, some people are negative. Some have very strong views but one thing I have noticed is there is not many that don’t care. This varied response is actually in my view what’s going to happen in 2009. It’s going to be varied and unpredictable in the whole.
Let’s look at 2008 and what’s been. I am not going to get into this too much because we all know what’s happened. The global credit crunch has hit and it has hit us hard. We started the year on the peak. It was the peak of almost every single market, not just the real estate market. The dollar was high, the stock market was buoyant, petrol prices were well over $2 a litre, house prices had just hit their peak, but everyone knew that that was the peak by this time. We have been in a year of constant downward trends. Consumer and business confidence has been at an all time low with sales volume and capital have steadily been lower and lower and unemployment levels this year have risen 2%. I know three of my friends who lost their jobs in the last week because of less business turn over.
The global credit crunch started by dodgy subprime loans in the states has had a ripple effect around the world and instantly devalued the price of all the assets we use to trade on. The stock market plummeted, oil prices have fallen 138% this year, our New Zealand dollar went into a free fall loosing almost 35c of the American in less than 2 months. New Zealand’s housing market went into dire straits with sales volume bellying out to levels not seen since 1992 (16 years ago) with only approx 55,000 sales being transacted in 2008. Real Estate prices have fallen by up to 10% – 15%in some areas already from their peak in late 07.
The world reserve banks have slashed the official cash rates all around the world. In the states its now the lowest in history at under .2% and in New Zealand it’s almost the lowest level at 5%. Interest rates on houses have come down a considerable amount. But the banks are not going to lend on any risk at the moment with most of them putting their minimum deposit amounts up to 20% on all new loans. So all up it’s been a year of considerable change and a year that has hurt and seen many people become closer to financial hardship.
2009 is not one that will bring pleasure or happiness to many people caught up in this economic downturn. As credit lending gets tighter and banks put on the pressure to repay loans on property that has decreased in value and in some cases decreased to levels below what they owe on the property. Unfortunately this is going to be a reality for some people and there will be more and more forced sales from it. Banks will step in and won’t be accommodating if you’re in a position to not pay them back.
I think in 2009 that the economy will start to bottom out a little. I don’t think we will see the prices of oil drop to much further, or the stock market crash to much further. There will be a lot of fluctuation though that will cause consumer confidence to remain low for a period of time. The New Zealand dollar although risen against the US Dollar in recent weeks will remain around in my opinion the 50c mark and will remain around there. But there is still too many uncertainties to place too much weight on this.
There are still factors I believe in America that could pan out either way. One of the bigger ones is the car industry and the almost total collapse of that. GM and Ford America are part of one of the biggest industries that feed the American economy. This industry is looking at almost completely shutting down. Already workers are taking pay cuts, working less hours just to try and help the companies stay afloat. But the reality is if the government doesn’t bail them out there is going to be a catastrophic meltdown of the economy in America. And it’s not just the car industry that I am talking about. It’s all the suppliers, all the people who service and or repair the cars, the distributers, shipping companies, you name it they will be affected. If the car industry goes under their will be job losses in the millions. They expect there will be more people lose their jobs than people that live in New Zealand. At this time all we know is that the government have given a reprieve till March 09 and we will have to wait till then to see what will happen.
Back to New Zealand what this really means is 2009 will be a year of consolidation for all I think. It will be the time when people who have borrowed on easy credit will need to take a reality check and downsize and live the life they can afford. I think we have in New Zealand seen the huge falls of commodity prices. It’s now a case of waiting and letting that filter though the system. What I think we will see a lot of people tightening up and living more economically. Not because of want but because of having to.
There are things that could happen in 2009 that if did happen will change everything that I have spoken about. The fact of the matter is that the world is on tender hooks in regards to the economy. It’s almost like balancing a car on a pin, it could go any way and we won’t know till it happens. This uncertainty is going to mean though that volumes of sales and consumer spending is going to remain low into 2009.
For the housing market there will be more and more forced sales in the coming year as the pressures of day to day living and the tighter economic conditions start to mean more job losses and less money for families. There is going to be a need for huge cooperation in 2009 between everybody who provides services and products. As sales volumes drop and bottom lines drop costs are going to be cut and this will mean suppliers are going to need to be flexible with their costs just to keep their existing clients. Food costs need to come down as people find it harder to buy for them and their families, and more people start eating less expensive foods. We will all need to help each other. The boom years have been a selfish time when people have made easy money but now for people to get ahead they will need the support of others.
For first time buyers in 2009 you will have to creatively think how you are going to service and in the first place get a loan to purchase your house. Thats if you dont have 20% of savings. Use the help of faily that already have high equity in their homes and ask to borrow some of it. Its a risk for them but it also will make you accountable for your repayments. There are many ways and its just about getting that help and support and it applies not just to housing as well. We could all save so much money if we worked together in some things instead of fighting to get the most as we have selfishly done in the boom times. This is not the time do do this.
For the aggressive investor and purchaser I think there could be some good opportunities coming up in the property market. There are already properties you can buy that are positive cash flow. And if you’re going to sit on them for a number of years until the economic climate stabilizes to normal again you will do well out of them. Although I do think that property prices will fall further as there will be time when wages come into line with property prices and may not stablise during 2009. I base this on the prediction that there will be increased forced sales which will put pressure on normal sellers to meet the market where the forced sales are if they want to achieve a sale. It will come down to sellers if you want to sell your house for a good price you need to display added value for the purchaser against the one down the road for similar money.
It will be tough out there for anyone in the next year but if you can ride it you will be fine. 2009 will be a year along with 2008 for global change. People will come out of this and look differently upon how we treat both money and the world. I think there will be a lot of good come out of next year. It’s just a case of taking the hit now and getting on with life. We have all lost out but we will all reap the benefits when they do come around.
December 26 2008 | Uncategorized | 2 Comments »
In September I wrote a blog post here about the price of crude oil and how it was falling and yet the price of fuel at the pump was not dropping. Since then I have recieved over 200 emails from readers who have all voiced their opinion in this matter and I think they all have a point.
When the cost of crude was going up in record speed the price of fuel also went up at record speeds. The price increases were passed onto the consumer almost instantly. After a while I wrote a letter to the New Zealand Herald and they ran a story which appeared on the front page which went on to say fuel was about 30c more expensive than it was comparatively when the crude oil was at that level. Now crude oil is half what it was then and we were paying 1.89 then.
Crude has more than halved since then and is less than 1 quarter of what it was worth at the peak in July 2007 when it was $146USD. Crude Oil today is $35 USD a barrel. Although our dollar has dropped back you have to look at the figures. In the past two weeks the crude price has dropped almost $15USD and our New Zealand Dollar has gone up almost 5 cents. But we have not seen any movement at the pump price. It has been $1.39 for about 3 weeks now.
I have been following the price of fuel vs crude oil when it was rising and both when it has been falling. A barrel of crude in New Zealand will be $61. This is actually $9 less than it was yesterday due to the rapid drop of crude oil prices. I believe that the price of 91 Octane should be approx .85c per liter and that is taking into consideration our lower New Zealand Dollar. I am sick of us all been taken for a ride on the price of fuel at the pump by these big oil companies. The price is over .50c more than it should be, there is no way you can deny that at all. We are paying too much at the pump.
But is this a sign of times to come as well. Is the price of crude dropping, the speed at how it has dropped and the continuation going to be a reflection of what the houses prices and the economy will be doing in 2009. It makes you think again doesnt it….
December 25 2008 | The Market | No Comments »
I just read an article published on stuff.co.nz and its one that I thiought I need to share with you because of the impact this will be having on the housing market in New Zealand. The article is below:
The exodus of migrants to Australia hit a record in the past year, while tourist numbers from northern Asia are slumping badly because of the global economic slowdown.
Australia’s stronger economy is an increasingly large safety valve for Kiwi workers in tougher times.
In the past 12 months, the number leaving to live or work in Australia would fill Wellington’s Westpac Stadium, with another 800 standing outside.
The net loss to Australia in the past year was 35,300 almost 100 people a day. That is the biggest exodus on record. Previous peaks in migrants came after the 1987 share crash and in the late 1970s.
New Zealand gained 3600 permanent or long-term residents in the past 12 months.
In November alone, 600 more people left New Zealand than arrived. That is a bad sign for an already struggling housing market, with Westpac economists expecting house prices to fall by another 5 per cent next year.
Tourism is also facing a tougher year. The industry employs one in 10 workers in New Zealand and some economists expect the sector to be badly affected by the global recession, cutting into the $1 million an hour that overseas tourists spend here.
Tourist arrivals in November were down 4 per cent on the same month last year. But there was a 46 per cent dive in Japanese tourists for the month. South Korean and Chinese visitor numbers also fell sharply.
Tourism New Zealand chief executive George Hickton said he expected tourism to be down by 6 per cent or so in the peak summer season. “But our concern would be from March, the low season, as bookings are quite light.
“We will have to batten down the hatches to get through a tougher time.”
New Zealand would get some benefit from the big fall in the kiwi dollar, which meant tourists typically spent more while they were in New Zealand. Lower world oil prices would also eventually result in lower air fares.
In November, tourist numbers were down sharply because Japanese parents cancelled school charter flights for 6000 children after the high New Zealand dollar pushed up the cost of thetrip.
But Tourism Industry Association chief executive Tim Cossar said the fall in the dollar meant New Zealand was a good value holiday destination.
Backpacker hostels, holiday parks and motels were so far unaffected by the recession, but bookings “were looking tough” after February, he said.
However, the domestic tourist market was still strong and Australian tourist numbers were holding up.
Source: stuff.co.nz by James Weir
Will this be impacting on our New Zealand Housing Market. There is no doubt in my mind that for the short term it will be. To create a balance in the market there needs to be equal supply and demand. At the moment there is substantially more property on the market than buyers. In my last post this is the classic signs of decline.
I asked my followers on twitter why you think so many people are leaving for over seas and most of them said it was for increased wages. Although the cost of living is higher over in Australia people in this recession time aren’t so much looking at the bottom dollar but the top dollar and this is where we are suffering at the moment.
The effects of this on the Housing market in New Zealand may aid in bringing prices down further but there is no way of telling this. But what it will do is put more stock onto the market and add even more time to how long it takes to sell a property.
December 21 2008 | The Market | 1 Comment »
During the last few years the real estate market was rising all over and we were experiencing a sellers market. The media went wild over the frenzy and everywhere you looked there was someone or something telling you that real estate was HOT HOT HOT! Prices were going through the roof and there was unprecedented growth and people were becoming rich by simply buying and selling houses.
Now the market going through a correction because there was too much growth too fast. In some areas prices and inventory levels are going to decrease. Is that a good thing? Yes, it is. It’s healthy for each market to go through it’s cycle. This ebb and flow is good and allows each market to grow and then collect itself and catch up, and then eventually grow again.
What has happened over the past few years is prices have increased and increased and just keep increasing. But this prolonged spur of growth can’t be sustained forever and there then there comes a point when people are no longer able to pay the prices of the homes. During the boom times people begin to notice how much the neighboring homes are being sold for and they want in on the action. When a market heats up and prices begin to rise quickly everybody starts throwing their homes on the market and the market becomes flooded with property.
Eventually when the demand slows, but people are still wanting to sell for more and more, those home-sellers (who are always the last to accept the end of a growth period) will need to adjust for this and the market can correct itself.
Here below is a wheel with what I call the 4 seasons of any market. I will explain them below.
This boom or growth time is called the expansion. Expansion brings job growth, population growth and a high demand on the infrastructure of an area. Roads need to be built, restaurants open, hospitals expand and prices rise. This in the Real Estate market brings new construction, new sub divisions and more money. Property prices increase and demand for the property on the market increased. This was felt here in New Zealand around the years of 2001 to 2007.
In New Zealand what we experienced in the later parts of 2007 was equilibrium. Equilibrium is when things begin to slow and settle. Prices have reached their limits, or beyond, and this period of time brings high prices and as a natural consequence less businesses move into, or expand in, the area. In this part of the cycle prices usually slow to a steady lever but this time because of the Global Credit Crunch we have seen a very short time in this area and fast movement into the next step in the cycle which is Decline.
Decline occurs as the demand for housing decreases, job growth stops and businesses begin to relocate to save money. During this time, prices become stagnant or even decline as rents and occupancy go down. Usually this decline is merely a slowing of the growth rate, but in markets where the rise was too fast the decline must result in a correction (decline) of prices which is what we have seen during 2008.
The market will then move into absorption. Absorption occurs as the lower prices and occupancy levels fall below the national averages and/or the area becomes attractive again to businesses looking to relocate. Usually in this time incentives are introduced by governments to encourage growth within the community.
I like to think of the market as a natural and living cycle that has laws that it has to follow. The easiest way to explain this is by calling the 4 cycles in the market a season. Just as nature has it’s seasons, real estate markets have a healthy way of transitioning from period to period. Sometimes depending on external factors such as warmer sea temperatures a season could be more violent. In the real estate market the same principle will apply. If there is an unusually high turnover of volume or higher than usual debt in the market this will affect how the next season performs. Experiencing these transitions and understanding them is very important and if your serious on property this will give you a huge leg up and will also help you as a home buyer or seller understand how they work so you can weather out the storms and relax in the warmer and rosier seasons.
December 20 2008 | The Market | 2 Comments »
Its official. Sales volume is the lowest it has been for 16 years 11 months and the market has never been harder to work. Sellers, Buyers and agents… We are all having to adjust, compromise and accept that the days of the boom are well and truly over. And property prices have in fact in some areas come back 10% and some places maybe more. Negativity is so easy to talk about these days when the markets are depressed. Every day we are all hearing about the Credit crisis, banks bailout, tougher lending, house prices and sales fall, car industry crashes, jobs been slashed, and I could go on for a very long time.
These of course are the reality of today but we have to look in hindsight at whats happened prior to bring this about and the fact of the matter is that too many of us are forgetting about is that from 2000 to 2007 there were 7 years where there was the biggest economic growth this world has ever seen. This created jobs in huge amounts businesses were making money without huge expense and effort, many people bought property and in 4 years sold it for double what they paid for it enabling them to buy bigger and better homes and allowing others to get into the market easily at the time. We were all living relatively good lifestyles and many of us were probably living at a level above where we deserved to be.
Reality has hit home but is this a reason to be scared, freak out and stop doing the economic activities we used to do? NO! It’s a time to consolidate definitely and a time to work smarter and stop being lazy. Do you want to be left behind and watch the ones who take action now prosper in ten years time. Are you going to be the one who says, dam I wish I took action when there was time. I sure hope not. There is no reason to worry, it’s time to start opening your eyes up and see whats happening around you. We have seen a major shift in the market place one which few people really expected, homes and property continue to be bought and sold at new levels every day of the year. There are always people who need to sell, and people who need to buy, and so long as there are these 2 people in the market, property will sell. It just won’t sell at prices that where around in 2007.
Housing prices today right now are in many places at a level that has made homes right across the board more affordable. And in my view the key to selling your property in 2009 will be in the ability to show that your home has the best value for money on the market, and attract the right buyers to it, and when you’re buying and selling on the same market you aren’t gaining or losing any of that market change. Don’t be afraid to step up to the mark and make a move.
There are some very good buys out there now. We don’t know if there will be better buys to come. All we can do is work with what we have now, and there are plenty of people wanting to sell. Plenty of people are wanting to buy. Enquiry on this blog has doubled in the past three weeks and the search terms are mostly about how to find a good buy. If you want to know where a good buy is, talk to a trusted real estate agent. In this market as a seller they are going to be your best help and also for a seller a real estate agent will be helpful in so many ways. Its bridging that expectation gap which the agents do in order to meet everybody’s needs which is so important.
I have a very large social network online and am in constant contact with them. Today I conducted an experiment. On Twitter I asked a simple question. ‘What are your concerns going into 2009?’ 70% of the response I received was positive and about the opportunities that they see coming into play now. The other 30% were concerned about the financial pressures of life. Which person do you think is going to take action and prosper from it.
Take action. Don’t sit by and let things happen before you. If you have a problem, for example you need a job transfer somewhere and you need to sell the house, take action and sell it. Maybe consider a part swap of a possession somewhere else or something else to sweeten the deal to the buyer. These things will work and you will see the results. I believe the time of opportunity is near. But the opportunity is lost if your too late. Be in. Don’t be scared and think of the long term goal. If your purchasing a home today, tomorrow or in the near future good luck. There are some great buys out there for you to snap up and they arent a trick. This is for real. People lived lives a step above what they earnt and now are having to take the hit. This is the opportunities for you.
December 16 2008 | Buyers and Sellers and The Market | No Comments »
Yesterday the ANZ National Bank announced property loans will now have to have a 20% deposit. Now this closes up the banks and means that lending in throughout New Zealand is tightening up and buying is becoming a lot more difficult. The 20% deposit in many cases will now need to be savings which means that gifting or using equity from another property is not going to be accepted by the banks. The banks are saying even if you want to buy a rental investment home they want to see at least 10% savings from your bank.
This is going to a have huge impact on the first home buyers market. For an average home in Christchurch which is sitting around the $300,000 mark, under these new conditions a buyer will now need to have clear savings of $60,000 before the banks will look at doing a loan. A few years ago you could get in with 5% deposit which will have been $15,000, and there were many lenders doing it for less than this.
Generally speaking, we will not be offering new lending in excess of 80 per cent LVR(loan to value ratio. In some specific circumstances we may be in a position to lend above 80 per cent but customers will be required to demonstrate an undoubted ability to service the loan in the event of changed financial circumstances.
This is the official statement from the ANZ National Bank:
* For all new lending, we will be ensuring that both the bank and the customer understand the value of the property in question. Where we do lend beyond 80 per cent LVR, we will require a new registered valuation.
* We will continue to consider LoDoc (low documentation) but to a maximum of 60 per cent LVR.
* We will continue to support our residential investment customers but are unlikely to lend above 80 per cent LVR. For all new residential investment lending applications, we will seek a registered valuation will be required where the LVR is greater than 75 per cent.
* This comes into effect on Thursday 27 November and applies to all new lending applications. Existing lending arrangements and commitments will not be impacted.
* This applies to ANZ and The National Bank.
If you’re a first time buyer and want to buy a home you need to save. We have come off a number of years where things have boomed and as a part of this have naturally adopted a society of spending and consuming. There are huge amounts of temptations out there to spend money on, there are countless amounts of gadgets that are constantly evolving and needing updating, flash cars and the temptation to spend mega money on small do up projects. These things have been a way of life for many but if you want to buy a home in todays market, even though prices are falling you will need to save. This is so that you can both have enough money for the deposit for a loan and then to demonstrate to the lender (the bank) that you can save and service the loan.
What effect could this have on the already unstable market that is looking for buyers. There is a huge supply of houses on the market and with very few sales already it might just make it harder to find that buyer who can buy your house.
If you are a first home buyer talk to your mortgage broker or bank manager, they can help you clear up any questions you may have and even maybe able to set you on a path to achieve what you want. Talking to my broker today banks will stray from these harsh lending criteria but only on a case by case basis. It may mean that you will need to get gifted some money from your parents to top you up for a loan, it may mean they need to have take out small loans or borrow back on their own equity if they have some. There are options. Its now just a matter of being more creative and committed to saving for that deposit.
November 27 2008 | Buyers and The Market | 1 Comment »
Three types of people in the world……..
The recent and ongoing world economic crash is one which will be remembered by everyone for a very long time and will change the way things run and operate in the future forever. This change is not ‘going to happen’, it’s happening and if you think what you used to do will work tomorrow chances are it won’t. Obviously the common principles of people relations will never change but the interaction within society is changing. There are millions of people around the world suffering financially from stock prices falling away, from house prices falling and from any other means associated with the credit crisis. Closer to home the building industry is feeling the pinch with many leaving the profession in search of more work. The same is happening to Real Estate Agents where many have left in the search for steady income. But the facts of life are we are all in this together. Unemployment Rates are set to rise from 4.2% now to approximately 6% by next year which is the highest in over a decade. If you look back we have just come off a period of relatively easy money. Home owners only had to sit on their assets and they were making money every day. This stimulated the economy and money was flying in all directions.
But what’s happened now. Interest rates, petrol prices, house prices, commodity prices although easing back now went through the roof. This practically stalled the economy and has put the brakes hard on the house prices. It’s fair to say there have been many other factors leading up to the current economic climate that we are facing. I don’t need to go into it as we are inundated with it constantly in the papers and on the news.
You’ve probably heard the saying “There are three types of people in the world, those who make things happen, those who watch things happen and those who wonder what’s happening!” Everyone has varying degrees of how they pay attention to the world around them. Depending on your level of attention, you’ll notice the opportunities. If you’re the type of person who pays attention at a very high level, you’ll tend to see more opportunities and therefore make more things happen. If you’re the type of person who just pays attention to what they “have to” to “just get by,” then chances are you may notice a few opportunities, but for the most part you’ll tend to notice other people making things happen and then you’ll join in. If, however, you’re the type of person who doesn’t pay attention at all, you’re not going to even notice the opportunities, you’ll occasionally notice other people making things happen, but most of the time you’ll wonder what’s happening.
I believe that in the coming year there will be amazing opportunities coming up for people who are paying attention to what’s happening now. Mortgage rates are falling and are falling faster than ever before. House prices have fallen by 10% in most area since their high in September to November 2007. There are people crying out for help financially and if you’re paying close attention to the financial position of the world you should be able to see some opportunities that can and will benefit you in the future.
November 25 2008 | Uncategorized | 4 Comments »
We have seen the Melbourne cup, experienced Halloween for 2008, been wowed by the fire crackers on guyfolks night, university is finished, secondary school seniors have finished school and are in exam mode sowhere does this lead us now. Christmas. December 25th. And then a week later its 2009. Its only 5 - 6 weeks away now and with everything going on around us it will not take very long to arrive. So what have you got planned for the festive season.
This morning while walking to work I was listening to the radio from my phone and heard snoopies Christmas playing. This is the most symbolic song in my life and whenever I hear it it always cheers me up. This year for many is going to be very important for many people. It’s been a tough year for many and this should be a time to reflect upon events that have happened. For the entire world it has been shaky.
A major correction is taking place globally. A correction that is taking place in essence because of the huge greed that was needed to be fed in the world. In my view there were too many people making huge amounts of money too easily. Too many people not giving back when they were received. We are now seeing some of these people having to take a step back and consolidate.
This Christmas and New Years will be the first in 5 years since I left home that I have been able to spend with my family and I am truly looking forward to it. It will be a time to look back at on the year and say although it was tough I will be better next year. There are opportunities out there coming from the global down turn you just have to see them.
As a pre Christmas gift I want to give you all a 6 week e-course that I had developed. We had several uses for this information but I believe that there will be many people out there that will find this information invaluable. The e-course is based on profiting from property but in light of the current economic times I adapted it and its more focused on budgeting and spending wisely.
I sell this product for $67 USD normally but I want to give back. I have had a great year and I want to
help people out. If you sign up now you will get the 6 weeks of material leading up to Christmas.
These are the topics that are covered weekly are:
1: The action plan – Plan to Fail : Fail to Plan
2: What the Banks Don’t Tell You
3: Hire Purchase Traps
4: Make Insurance Work For You
5: Where Does the Money Go – A Simple Guide to Budgeting
6: How to Create and Keep A Simple Budget
Although this is focused on New Zealand it doesn’t matter where you are in the world the principles are the same. Below is the link to the 6 week e-course. When you click this link you need to enter your name and email address and in the clickbank receipt field enter the words voicespromo1this this will unlock the field so you get this great gift for free. Once you do this check your email inbox and you will be sent a link to click to confirm your order, once you do this and type in the security word your first week of the course will be sent to your email inbox.
I hope this helps you. It’s a great resource. It’s costing you nothing and I hope that it helps on the way to Christmas and the new year when money can be a little tighter.
Thank you and I wish you all the best .
P.S. If you think that this may help someone in your family or one of your friends please foward the free sign up link or this page to them so that they can as well enjoy this resourse.
November 17 2008 | Uncategorized | 2 Comments »
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