Christchurch Real Estate

Property, Property, Property, The Market Is So Confused!

The Breaking News story today is about property again. Seems like lately everything is about property property property. Today’s headline states Property sales plunge in January – January house sales worst in nearly two decades…

Sounds terrible doesn’t it! This story is quite a different picture that was being painted last month when the authorities were talking about the market in December. It is clear that there is a huge amount of instability within the market place. People are unsure what exactly is going to happen and the media is always reporting on the has been or the statistics. Here are some of the facts relating to the latest data that has been released.

• Home sales plummeted in January to their lowest level in nearly two decades

• January saw just 10,272 new listings coming onto the market; the first time in 4 years that the January figure has been lower than December

• T
  

  he total figure of 3,666 dwellings sold in January this year was the lowest monthly total since electronic records began in 1992 and was only the second time the total figure had dipped under 4,000.

• The national median of $350,000 was up 7.7 per cent on the corresponding figure of $325,000 for January 2009, but was $10,000 down on the median price for December 2009.

• The national median for days to sell in January was 43, 16 fewer days than the corresponding period a year ago but 10 more days than in December 2009. Sales were quickest in Southland at
  

  33 median days and in Auckland where the median days to sell was 36.

So why the big change between December and January when January is typically the busiest month for Real Estate transactions in New Zealand. SO what is holding it up. The answer isn’t as simple as one answer. There are many reasons. Some of these include the recent news about the possibility of tax reforms relating to property, some factors include New Zealand heightening unemployment ratio, other things such as the media releases stating that house prices are at levels not seen since the 2007 peak.

I think all these factors have put the brakes on people making decisions relating to property. Naturally because property is a massive investment people don’t want to be making investments when there is uncertainty around it.

The next step in the equation is almost anybody’s guess. There are no hard and fast rules. When it comes to property investment it would be fair to say that many people will be holding off, including myself until it is clear what the government is going to do regarding the tax reforms relating to property and gst. The recent Speech done by the prime minister will have adverse effects on peoples perceptions of residential property

investment. This is the key part to the speech.

It will be a long awaited Budget in May and I can’t wait to see what it produces. There will be big change and until then unfortunately I feel the property market might be quite subdued because many investors will be holding off buying. But on the flip side to this with a relatively higher property inventory compared to the number of sales there could be some great buying opportunities for people who wish to buy their own home as some vendors could become pressured due to the lack of interest in the market.

There is also one other point to take into consideration which could cause all of what I have said above to be a uncredible. Since the Real Estate act changed in 2009 agencies do not need to be members of the REINZ who usually supply all the stats for the sales etc. SO just possibly maybe there is a slight problem with the stats from here on in and the real estate stats are not up to date. This could be the case because agencies do not have to submit their results to the REINZ. This would cause a dip in the stats if someone didnt enter their data. this is something I will investigate further.

This is surely interesting times.

If you want to view the entire John Key speech visit this link to download a copy of it.

February 12 2010 | The Market | 4 Comments »

Unemployment And The Real Estate Industry

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.

June 23 2009 | The Market | 2 Comments »

June 2009 – OCR remains bottomed out at 2.5% – Is This The Turning Point?

The New Zealand economy has been on a downward spiral along with global economies since 2007. Butmany believe that we in New Zealand have reached a turning point. In terms of New Zealands Official Cash Rate I believe we have hit the bottom of the line. It started in June last year when the Official Cash Rate stood at a record high of 8.25 per cent. Floating mortgage rates were nearly 11 per cent and savers were getting more than 8 per cent for the money in their term deposits.

In 2007 the world hit a point when the credit crunch hit and people were just struggling to pay the high costs and banks and finance companies started folding. This sparked the Reserve Bank on the fastest and biggest series of cuts in the OCR in history. The degree of OCR cut has been one of the largest drops in the World. The OCR here has been reduced 6.25% from 8.75% to 2.5% in just over 18 months.

This for the housing market helped the banks bring their interest rates down to record lows as well. But this is going to change Interest rates will be going up over the next few months (irrespective of what the RBNZ does with the OCR) as simple supply shortages and excess demand from governments increase the price of money. Two to five year rates will be the biggest rises, but I’d expect short term and variable rates to see some upside movement too.

Any of us who are struggling to meet debt repayments, or who consider they might be, or indeed who feels their employment might be at risk should quickly start liquidating assets and clearing debt NOW ahead of the rush.

So as far as OCR rates are concerned this is the end of the line. There will not likely to be any further cuts to the OCR but there will probably not be any increase in the OCR until well into 2010 when the economy starts a slow recovery.

June 13 2009 | The Market | Comments Off

Do You Actually Believe We Have Hit The Bottom Of The Market?

Well if you do I believe your being naive. There has been in the months of late a definite pick up in the market especially in the terms of sales volume which one could almost think that a bounce back is happening. There has been great activity, a lot of sales and new buyers emerging from the dark places in the economy. And they have all had good merit.

With the lowest interest rates in decades and coupled with dropping values in property all around New Zealand – buying a house has become a heck of a lot more affordable for many many people and this has sparked a few people to take action and buy a home. And to be honest it isn’t a bad time to buy a home for yourself because if you are buying for yourself in many places this option is cheaper than renting.

But in terms of the market being at the bottom I do not believe it’s there yet. There are many factors that conclude to me thinking this and I don’t share this view alone.

As we all know the Governments annual budget was delivered and our treasury are spelling out that they do not expect the housing market to pick up and expect property values continue to drop. The treasury say that house prices are forecast to decline nearly 8 per cent in the year to March 2010 and a further 4 per cent in the year to March 2011. They are already down an annual 9 per cent.

The drop will be attributed to the rising unemployment rates which is tipped to be upwards of 9% by 2010. The Treasury also forecast low levels of investment in property and noted annual building consents were at their lowest in over 25 years.

Westpac economists are also warning the pick-up in the housing market is unlikely to last. Chief economist Brendan O’Donovan and research economist Dominick Stephens predicted low sales volumes and gentle price declines in the second half of this year.

Prices would start falling again soon for the simple reason that longer term mortgage rates had risen sharply since March. They forecast house prices to fall 5 – 7 per cent during the next 18 months, with variations from that mostly determined by interest rates.

“Lower mortgage rates sparked the market revival, and higher rates will extinguish it.”

The big trend that is being picked is that mortgage rates were likely to continue weighing on the market for the next few years. Short term rates might fall, but only temporarily, while long term rates were more likely to rise. This alone is going to really hurt as money becomes tighter especially over this winter where rising unemployment, and continuing tight credit conditions will catch people out by surprise.

Indications of the improvement in the housing market so far this year included a 74 per cent rise in seasonally adjusted house sales in five months, from rock-bottom to roughly average. This has been attributed to continuing strong net migration because of even worse conditions overseas in some countries. This trend here has also seen the number of days to sell a house had fallen back to 2007 levels, while the number of available listings in has started to fall.

My word advice for the time being is just to be careful when it comes to buying property at the moment. You need to think of property at the moment as a long term investment. Not something you could renovate and make a bit of money from.

June 05 2009 | The Market | 4 Comments »

Reserve Bank Of New Zealand Lowers OCR To 2.5% April 30 2009

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 extent 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 economic 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 »

Renting vs Buying – A Personal Perspective

Many people wonder whether renting or buying a home is better decision. Most of the time, history has shown it is a smarter financial move to purchase a home than to rent.  The final decision is unique to each situation of course. Here are a few points to note about both renting and buying.

 Buying

• May require a larger initial investment – the deposit (usually a mortgage is 20% of the sale price)
• You must be responsible for all upkeep otherwise value is affected
• If you want to move, your home generally must be sold
• Equity may go up, down, or stay stagnant depending on the home’s value
• Over time, the mortgage balance decreases and equity builds
• The ability to remodel and redecorate the home to match your needs and desires
• There can be tax advantages attached to home ownership

Renting

• Smaller amount of “up-front” cash
• When the lease is up, you can just move
• Costs for the term of the lease are more fixed
• Not gaining equity, but not losing it either
• Generally less work in maintaining a home or apartment
• Even if the property goes up in value, you will never gain equity
• Limitations on what you can do to “make it your own”
• No tax advantage to renting

Today we live in a more transient society. People move around a lot more with their jobs, are getting married later and want more flexibility with their living arrangements. There also doesn’t seem to be as much emphasis placed on the importance of having your own home.  Long term renting is becoming more and more common. A concerning reason for this trend is that it is becoming increasingly difficult to afford to buy a home, firstly save for the deposit and secondly be able to afford the mortgage repayments, especially in the major cities and more highly desirable and expensive areas. Housing affordability has increased from 2.1 times the average income to over 5 times the average income over the last couple of decades.

Under the cureent economic situation I have myself looked into buying another home. But for myself I cant get conventionally a 20% deposit as the eqity in my first home has fallen below the loan amount which I know has happened to many many people out there. Although this is not a problem for me bcause I do not intend to sell. The rent covers the mortgage payments and it works for me. But due to this I cant get another loan for another home to live in in Christchurch. So I have been forced with renting.

What I have found though is for my situation renting may not be the worst thing for me to do at the moment because housing prices are surely to come down further as this year unemployment and money problems worsen in this country. In saying that there has been some hugely increased sales volumes as of late. I am putting this down to the low interest rates where hungry cash ready investors see some good buys out there at a good interest rate. An investor friend of mine told me they were not worried if the price of the property dropped another 10% in value over the next year. They can see good returns at the current prices and the current interest rates to make it work. They also went on to say which is correct that the rice of property will go up again. A recession doesnt last forever.

If you are in my situation and find yourself unable to buy at the moment a house whether its your first or second or what and you find yourself haing to rent the best thing I think to do at the moment is find a relatively good priced property and cut your expenses down and save for a while. I believe the current cycle of good buying will not be over for some time. So if you sit down now and save you might be able to buy again when the horse is about to take off again. Thats what I am doing

April 19 2009 | Buyers and The Market | 1 Comment »

Westpac The First New Zealand Bank To Give New Zealanders A Mortgage Holiday

Finally there seems to be a little relief for those who are becoming financially stressed by this global economic downturn. Westpac is the first bank in New Zealand to follow Australia’s lead and offer 12-month mortgage holidays.The decision is part of the bank’s new set of measures to help financially stressed customers. Australia’s biggest banks are offering customers a 12-month holiday after pressure from their Prime Minister Kevin Rudd to go easy on those who had lost jobs and were struggling to pay their mortgage.

Prime Minister John Key said he welcomed the positive step to help those New Zealanders who had lost their jobs and still had to service their mortgage. Westpac New Zealand discussed its proposals with Mr Key before announcing it would offer customers new options of interest-only repayments and to extend the period of loan contracts.

But while many customers will welcome the new offers, Westpac acknowledged that postponing loan payments for any period would increase debt, and therefore may not be suitable for many borrowers. Mortgage holidays are nothing new. They have been around for some time and under special circumstances the banks usually will allow you to ask and try for one. But now the recent announcement is a step forward for people who are struggling a little more than they could have before. Its a step to helping people keep their homes in my view.

There are inherent dangers of mortgage holidays – for like all holidays they ultimately have to be paid for and would be careful in the way it applied the options.

Taking a holiday from your mortgage repayments certainly gives you a breather for a few months if that keeping that roof aloft begins to look a bit precarious, but to ensure your next intake of breath isn’t a sharp one, beware of the pitfalls. Missing payments can have a huge impact on future payments and the size of you overall mortgage.

Here’s what will happen to say myself in this situation;

• Taking just one year’s mortgage payment holiday.
• The price of the home dropping in value by 10 percent.

CASE STUDY

My house is worth $300,000 in todays market. My mortgage loan is for $270,000. So, I own 10 percent of my home at the moment. In one year, the 10 percent estimated drop means my home will be worth $270,000 the amount of my loan. If I add on the $15,000 I plan to defer on the mortgage that then means I owe $285,000 on the mortgage, but the home is now only worth $270,000 and I will owe $285,000 so that means I will have negative equity in the home. Meaning I will owe more on their home that it’s actually worth. This isn’s a problem if I don’t intend to sell but I probably wouldn’t be able to remortgage in future untill I get some equity in the home.

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It sounds like a really terrible situation and sounds daunting and you have to look at both sides of the fence when thinking of taking the holiday. The most important action that can be taken in times of hardship is for you to talk with their bank early so that if you are in trouble the bank can help you make the best descision for your current financial situation.

April 11 2009 | Sellers and The Market | No Comments »

New Zealand Economic Overview March 2009

Summery of New Zealands economy for the quarter March 2009

The NZ economy is yet to find a base. Business confidence surveys are either at, or near, historical lows. Employment intentions are tumbling and investment plans are being shelved. Corporate tax revenue – a key timely indicator of economic activity – has capitulated. Consumer sentiment is also very subdued despite falling mortgage rates, tax cuts and lower petrol prices. Car registrations are at their lowest level since 1994 and building consents in January fell to their lowest level since 1965. It is now likely that the recession, which began in the March 2008 quarter, will extend to five, possibly six, quarters as the full impact of recent financial market turbulence is felt. This has been exacerbated by the global downturn and follows a largely domestic and drought driven recession over the first half of last year. The last time NZ experienced such a string of negative quarters was during the oil shock of the 1970s.

Of course the positive spin on this is that we are close to the turning point, considering it is now the end of March. We have some sympathy for this view in terms of the pure numbers and the reality that the bungy-cord tends to come out, which is already manifesting in the housing market with reported uplifts in enquiries. But we also need to be realistic: 2008 was by-and-large a domestic induced recession in response to internal imbalances, a drought, and tight financial conditions. 2009 will have an added global influence.

On top of this, we would be inclined to throw some statistical quirks into the mix. Technically, NZ was in recession in H1 2008 but weakness was heavily concentrated so it didn’t really feel as weak as the normal recession. By late 2009, NZ’s GDP figures are likely to show a rebound into positive territory, but it will be out of sorts with other measures such as the unemployment rate, which is still headed higher. Hence, the H2 2009 rebound will not feel like a recovery at all.

The outlook for 2009 is dominated by four dynamics. These include:

• A credit centric shock. Despite signs that global credit spreads have eased and major central banks are embarking on quantitative easing to keep longer dated yields down, credit markets are still far from normal. It is no longer a question of price. We are in a world where capital is scarce, and this is not about to change for some time.
• A deep global recession, which started at the end of last year and is set to last throughout most of this year.
• A structural change in the pricing of risk, with a clear shift in the balance of power away from borrowers and towards savers and investors. NZ is already seeing this via changes in retail deposit rates, which now sit materially above the wholesale interest rate curve.
• NZ’s heavy reliance on offshore capital, which is evident via a large current account deficit and large net external liability position. The latter, at 93 percent of GDP, is a key source of vulnerability in the current global environment and needs to be reduced.

These issues above manifest in our forecasts via a number of avenues:

• A structural rebalancing for the economy away from debt-fuelled consumption towards more earnings centric growth (i.e. exports). This sees anaemic consumption growth for a number of years and a sharp improvement in the household savings rate.
• An elongated adjustment process, particularly with household balance sheets in most need of repair.
• A requirement for the currency to weaken markedly, and stay low for some time to assist in the rebalancing process.
• The economy to remain void of key engines of growth over 2009, as the combination of de-leveraging restrains the domestic economy, and the flow-on from a weak global environment restricts the earnings sector.

We expect the NZ economy to contract by 2.8 percent this year. By-and-large this reflects the big-picture forces noted above. Confidence remains weak, and we are only now starting to see the flow-on impact from the global scene. As these effects take hold via weaker export demand, falling tourism numbers and lower commodity prices, the recession naturally shifts from its urban focus towards the hinterland. We have already seen residential property prices fall by close to 10 percent from levels a year ago. This year will see much weaker rural land prices in response to a lower dairy payout. The lower payout and land prices will be the main transmission mechanism through which the global recession filters through into the rural regions.

Consumers are no longer the main driving force for growth. Consumption growth may be the weakest it has been since the early 1990s, but we fully expect more weakness to come in the near-term. Household cashflow may be improving thanks to lower mortgage repayments and tax cuts, but the deteriorating labour market and rising unemployment rate (we are forecasting close to 8 percent by the middle of 2010) increase the likelihood that households save any windfall gains, rather than spend them. Despite record low interest rates providing support to cashflow, the aggregate household debt servicing burden relative to income remains around 14.3 percent, well above its historical average of 9.6 percent. Improving this ratio towards historical norms has to come from a lower stock of debt. Negative wealth effects from falling house prices (we forecast a peak to trough decline of 25 percent in real terms) and tighter access to consumer debt are also acting to curb consumption growth, particularly for durables. But even when the economy starts to recover from 2010, we fully expect consumption growth to lag the overall economy. This is part and parcel of the rebalancing process, which sees consumption as a share of GDP fall from its current lofty 62.3 percent towards the historical average of around 59 percent. We are forecasting a 1.4 percent fall in consumption for this calendar year, and only a mild 0.7 percent growth next calendar year.

Businesses will do it tough, as both domestic and external demand wanes. Profitability is well down and firms have already responded by a freeze on hiring and investment at the end of last year. Firms exposed to domestic demand (e.g. retail and housing) have fared poorly as the recession intensified, but increasingly it will be exporters that will feel the effects of the global recession in the form of reduced or cancelled export orders. Thankfully, business sector balance sheets are healthy. But with topline revenues continuing to head backwards, the recession lasting longer than normal and balance sheet preservation becoming a priority, the onus will increasingly turn towards costs in order for firms to stay profitable. We foresee negative employment growth throughout 2009, and likewise for business investment. The latter will reduce the potential growth rate of the economy, and hamper the eventual recovery when it comes. Employment and investment intentions already sit at historical lows, and these are the next leg of the cycle to watch.

It’s not all depressing news. We are aware of certain pockets that continue to perform well. NZ’s macro framework has responded via interest rate cuts, expansionary fiscal policy and a lower currency. NZ’s financial system remains sound, a major differentiating factor from the United States and other nations. But all are within the context of the deepest global recession in half a century. NZ still stands out as being vulnerable given our reliance on exports and offshore capital. We are also mindful that monetary policy is rapidly losing traction given fierce competition for deposits and funding in general. And pressure on the Government to maintain our sovereign credit rating means they cannot simply go on an unfettered spending or tax cut binge.

Despite the pressure on businesses, we need to remain mindful that a household debt correction story is at the heart of this economic cycle. It is household balance sheets that need to be repaired. Household debt to income increased from 60 percent to close to 160 percent between 1991 and 2008. Debt servicing increased from 8 percent of disposable income to over 14 percent currently. Housing represents 75 percent of total assets. These dynamics were a reflection of the “old” macro environment where credit was cheap and freely available. This allowed NZ to run large current account deficits. In fact, when you overlay cumulative current account deficits over the past decade with home lending, the relationship is startling.

We are in no doubt that we will see the odd burst of activity, particularly in relation to the housing market, which seems to be occurring already (albeit off a very low base). But we struggle to see it taking hold given the global backdrop, turn in the labour market, and weaker appetite to lending per se. It is simply not credible for NZ to expect to borrow and spend its way out of the current jam.

The seeds of the long awaited current account adjustment have been sown. We see the 8.9 percent annual deficit recorded in December 2008 as the peak, with improvements to come from here on in. But rather than via better export performance, the improvement in the current account initially will be via lower profits generated by foreign owned firms in NZ and a lower overseas debt servicing burden, together with reduced import demand as a result of weak domestic demand growth.

A weaker currency is a prerequisite to the adjustment process and the improvement (and recovery) taking on a sustained look. With fiscal policy somewhat constrained in its ability to provide additional counter-cyclical support and monetary policy losing traction given the reality that borrowing rates are being determined by aggressive competition for deposits, the critical shock absorber that must adjust is the currency. Years of the currency remaining above its historical average has led to a deteriorating goods and services balance. We simply see the reciprocal going forward, as the currency follows its normal path of moving further than what is typically expected as the adjustment takes time. This has already occurred, and together with weak consumption growth curbing import demand, we envisage a return towards surplus in the goods and services balance by the end of this year. It’s essential for providing some much needed spine and balance to growth, particularly given the de-leveraging process we envisage for the household sector. We also should not forget that while commodity prices have fallen, the net effect has been muted via the terms of trade, and this is in fact giving us some comfort towards a better medium-term story for New Zealand.

We will be looking at a broad array of indicators over the coming months in terms of any recovery. We are in no doubt that we will see a recovery. Natural population growth, improved migration and easier monetary conditions are support factors that will gain traction as the global scene gradually improves. Business and consumer confidence, along with dwelling consents will be key to watch. But not until we see a sustained improvement in structural indicators; such as the ratio of consumption as a share of GDP, better mix to imports (more investment, fewer consumption goods) and improved savings rate; can we look towards any recovery taking on a sustained look. This looks a way off still.

The economy will come out of recession in the second half of the year, but a sustained recovery will be a mid-2010 story. Though we expect positive growth rates from the second half of this year, it will not feel like a recovery initially. Indeed, growth will be subdued heading into early 2010 as the economy remains in the de-leveraging process. It will not be until mid-2010, by which time the unemployment rate would have peaked and the global economy has started to mend, that the economy will embark on a sustained recovery and start posting strong quarterly growth rates. Pend up demand will fuel the initial rebound, as building consents play catch-up to underlying housing demand, consumers replace durable goods, and businesses upgrade their depreciated plant and machinery equipment. All are natural pro-cyclical forces that once unleashed will see the economy temporarily expanding well above its trend growth rate.

And let us not forget the Rugby World Cup being held in NZ in 2011. Preparations in the lead-up for the event will further add to activity, and we can expect a surge in visitors for the event, leading to a boost in services exports. We see the economy performing strongly in 2011.

Don’t forget the medium-term story. The sacrificial lamb in a de-leveraging environment is growth. Reality needs to set in as it’s a process that will take time. But the medium-term outlook remains strong. NZ still producers the goods (and services) that the world (increasingly Asia) demands and this sets us in good stead for the future. The rebalancing away from the spending towards the earnings sectors will put the economy on a firmer footing to grow at a more sustainable fashion. As firms get back to basics and focus on what they do well (and get assistance via small changes in the microeconomic arena) the seeds of better productivity growth are being sown. This is a dynamic we are already detecting and expect to become more pronounced as the year moves on.

source: National bank of New Zealand

April 02 2009 | The Market | No Comments »

April 1st Tax Cuts Loom – How Much Extra Will This Mean For You?

The short answer is that for people on the average wage of $48,500 a year will get an extra $15.66 a week and those on $100,000 will benefit by $18.46 according ti Bill English and his Tax Cut plan. From Wednesday when the  tax cuts roll out people will have a little extra money in their pay but thats not the end of it in terms of spending out.

There are also going to be increases to benefits and superannuation, and a boost to the minimum wage take effect. The increase the minimum wage from $12 to $12.50 in line with the Consumer Price Index, also the minimum wage for training and new entrants’ will increase from $9.60 to $10. The only problem I am seeing from this is due to the recession we are in now how will this effect the employers in regard to being able to retain their employees with a marked reduction in incoming money for almost all businesses is being felt accross the board.

But the Minister of Labour Kate Wilkinson said on Feburary 9th when the increases were announced, “In reviewing the minimum wage it was clear that, given the current recession, we needed to find a balance between protecting jobs and fair pay for workers.We do not want to see workers priced out of the market during these difficult times, but we are confident that a 50c increase, in line with inflation, will not harm businesses.”

The total cost for this package has been totaled to over $2 billion. And this extra cash will start flowing into taxpayers’ pockets as a result of the tax cuts and a 3.4 per cent increase in benefits and superannuation and student allowances from Wednesday.

On the flip side to this our New Zealand ACC system is in crisis and has needed a huge cash injection from the governement and the tax payer. An increase in Accident Compensation levies will take some of the extra money that we will get from the tax cuts. Here is a breakdown of the extra ACC charges which will be effictive from 1st July 2009 for motor vehciles.

Petrol levy (cents per litre) – From 9.34¢ to 9.90¢ = increase 0.56¢

Average annual licence fee - From $136.48 to $168.45 = increase $31.97

Total average per vehicle - From $254.63 to $287.00 = increase $32.37

Then on top of this you have an increase in the ACC you need to pay on your liable income. This has been rolled out by the Governement and will come into effect the same day as the Tax Cuts (April 1st 2009)

The Government has adopted the following levy rates:

• The Earners’ Account Levy (paid by all employees and self-employed to cover their non-work, non-motor vehicle injuries) will increase from $1.40 to $1.70 (including GST) per $100 of liable earnings
• The average composite employer and self-employed levy will increase from $1.26 to $1.31 per $100 of payroll. This levy excludes GST and is an average rate. Individual rates for industry groups may be higher or lower
• The new rates take effect on 1 April 2009

For an example and to put these into real numbers a person on the average wage of $48,500 per year currently pays $658 a year or $12.61 a week to ACC for the Earners’ Levy. Under the charges an average wage earner would be paying $940 a year or $18.02 a week.

But taking everything into account overall the changes leave fulltime workers on the minimum wage $24.30 a week better off.

The tax cuts will benefit 1.4 to 1.5 million people, the Treasury says.

March 28 2009 | The Market | 2 Comments »

New Zealand OCR Dropped to 3.0% 12 March 2009 – Will This Help?

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 »

OCR Cut 29th January 2009 to 3.5%

This cut in the Official Cash Rate has been very much anticipated by most. We all should be aware of the huge hurt the global economy is in and the huge effect this is having on almost every single market we know. This rate drop is hoped to bring back some business confidence which is at a 30 year low which has caused our dollar to drop to approx .52 USD. Instantly after the OCR cut as you can see by this image the New Zealand dollar dropped 1 whole cent of the American Dollar and will most likely drop another 1 cent before it may rallay.

Its hard out there and with fuel prices creeping back up, Fonterras payout drop, house sales declining there isn’t alot to be optimistic about right now. But todays OCR drop of 150 bias points will hopefully go some way in helping that.

Here are the facts.

OCR before today was at 5.0% now it has dropped by 1.5% to 3.5%. The lowest in New Zealand history.

The OCR was at its peak at 8.25% which was in June last year.

On the flip side of this rate cut we will see our New Zealand Dollar drop slightly which is good for the exporters. The NZ OCR is still well higher than most of the western nations. With most of the western nations having official cash rates around 0 – 1%. Does this mean we still have a way to go before the activity in the economy picks up again. I feel there is still a way to go before the economy picks up and people feel comfortable to buy things.

Should soon be able to buy property at cash flow positive with interest rates creeping down to these levels.

January 29 2009 | The Market | 8 Comments »

Selling your house in 2009

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 »

New Zealands Household Debt Falls For First Time in 17 Years

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?

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 »

Crude Oil Drops To Record Lows as World Economy Crashes

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 »