Well if you do I believe your being naive. There has been in the mon
ths 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 »
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 »
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 »
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 »
Interest Rates Around the World are tumbling down as the Reserve Banks of different countries are trying to stabilize their economies as one of the worlds harshest financial crashe
s crunches down on everybody.
The Reserve Bank of New Zealand was the first to kick of cuts in December with a massive 150 basis point cut which took OCR down to 5.0%. After peaking at 8.5%, this rate has been cut 350 basis points since June and reflects the extent of the credit crisis. Since June, the New Zealand dollar has fallen 32% against the US dollar.
The Swedish central bank cut interest rates 175 basis points and took the OCR down to 2.0%. This was 75 basis points more than expected which shows how important and extreme this problem is. The OCR in Sweden have fallen 275 basis points and the currency has lost 41% since June.
The Bank of England cut rates by 100 basis points to 2.0%. The BOE was cutting rates from the end of 2007. Since December of last year, the OCR has dropped 375 basis points and the currency has fallen 28%. Housing is the major reason why the cuts are needed. The UK nationalized some of their biggest banks as their financial sector got trapped in the global credit crisis. A few days ago an aggressive plan was announced that will defer some mortgage payments for up to two years to counter rising foreclosures. House prices fell 2.6% in November and a record 14.9% for the last 3 months.
The European Central Bank joined the party by cutting rates by 75 basis points which was more than was anticipated. After raising rates in June by 25 basis points, the ECB has now cut rates 175 basis points to 2.50%. The currency has lost 21% since late June. after initially believing they were going to avoid the fallout from the US credit crisis, Europe has seen their economies collapse and doubts have been raised over the European Union’s ability to put together comprehensive financial stabilization packages.
The US Federal Reserve isn’t cutting rates yet. I have read though the Treasury is looking at a plan to force mortgage rates down. While the plan is evolving and may not be ready before Obama takes office. The US Federal Reserve dropped it interest rate late in October by 50 basis points to 1% which is the lowest level it has been since 2004 when the economy was recovering from the dot com crash. House prices in the US have come back by up to 30% in some areas. In November over 500,000 jobs were lost in the US, this is due to cost cutting by all industries to try and stay operational through this credit crisis. This is a snapshot of whats happening if you want more go to the CBNC website
The interest rate cuts do have positive impact on housing. It makes money more cheaper t borrow and closes the gap between renting and a mortgage which will see some buyers take action. The rates also help corporate borrowers who have been cutting costs and causing many in the workforce to lose their jobs. There will be still a fair bit of correction to go with this credit crisis. The banks are starting to take drastic action which has stabilized many of the markets around the world compared to what was happening.
December 06 2008 | The Market | No Comments »
Todays OCR rate cut of 1.5% from 6.5% to 5% is a bold move by the Reserve Bank of New Zealand and is one that is hope to put some stimulation into our very slow economy. The OCR drop will mean to us as consumers a whole host of things that will save us all some money in the long run. 
The main one will involve bank interest charges. Credit card interest rates will drop. Westpac has been the first and has dropped their interest charges, Kiwibank also has lower than the given normal credit interest rate. This will be great coming into Christmas and may ease a bit of pressure of families.
The big one that will help hundreds of thousands of New Zealanders will now enter into a market with lower interest rates as all New Zealand’s banks have been told to pass on the benefits of today’s record 1.5 percentage point cut in official interest rates.
Unfortunately this doesn’t go far enough in my opinion. There are still thousands of people fixed mortgages on interest rates around the 8% mark and higher and the sad thing is the breakage fees for these people is in some cases more than the savings that they may make with the lower interest rates.
But for all new mortgages and people coming up for renewal this is the rates you should expect:
ASB has cut its variable rate from 8.7 per cent to 7.95 per cent, while SBS has cut from
9.15 per cent to 7.2 per cent.
Kiwibank cut its floating rate from 7.95 per cent to 7.45 per cent, its six month rate from 7.49 to 6.99 per cent, its one year fixed term 6.99 per cent to 6.49 and its 2 year rate from 7.59 to 7.19.
Westpac has left its floating rate unchanged, but has today moved to cut its fixed terms. Its six month term has fallen 0.25 per cent to 7.1 per cent, while its one year rates have fallen by 0.5 per cent to 6.8 per cent
BNZ has cut its six month mortgage rates by 0.5 per cent, moving from 6.99 per cent to 6.49 per cent. Rates on its ‘totalmoney’ product are coming down from 8.29 per cent to 7.75 per cent.
Also what we are seeing is the New Zealand Dollar Dropping as well. With the Reserve Bank of New Zealand cutting the OCR the New Zealand dollar against most of its trading partners is weakened keeping our dollar low. But when other countries drop their OCR their currency is also weakened.
The New Zealand dollar has fallen from above US82c this year to US53c this week. This has increased returns
to exporters. But on the flip side many exporters are experiencing slower demand in export markets as a result of the global financial crisis so the exporters needed today’s big cut to keep downward pressure on the New Zealand dollar so that this part of the economy doesn’t stall.
At the end of the day the interest rate cut announced today was one that was predicted by most because the economy has clearly been slow and this rates cut will do wonders to stimulate activity in our economy. This should be good news to home owners and people wishing to buy a new home.
It is now becoming much more affordable to buy a home now. Interest rates have come down from where they were, house prices have dropped in almost all areas of New Zealand. These two factors are making the market real again. House prices and new mortgages are now at realistic levels and if you are thinking about buying some real estate I think that you now need to have a serious look at the market and consider what your next move will be. Are you going to wait or move…..
December 05 2008 | The Market | No Comments »
BNZ is throwing down the gauntlet to other banks in slashing its lowest mortgage rate today to below 7 per cent.
The ‘mortgage rates war’ was a key battleground four years ago when BNZ and ASB went at it hammer and
tongs in the spring of 2004.
That tussle over 2 year fixed rates gave the housing market a second wind that did not run out until the end of 2007 and hamstrung the Reserve Bank’s efforts to slow the economy.
The difference this time is that the battle is around the variable and 6 month rates and could restore some the Reserve Bank’s monetary policy powers and lift the economy as it heads towards a difficult 2009.
BNZ has announced a new 6.99 per cent 6 month mortgage rate that makes it the lowest in the market, beating even Kiwibank’s lowest rate of 7.29 per cent for one year and Westpac’s lowest rate of 7.19 per cent for 18 months. ANZ and National’s lowest rate is 7.3 per cent for one year, while ASB’s lowest rate is 7.35 per cent for 6 months.
BNZ’s new one year rate is 7.29 per cent, down from 8.29 per cent, while its 2 year rate is 7.35 per cent, down from 8.29 per cent.
This latest competitive first strike ahead of an expected 100 basis point cut in the Official Cash Rate next Thursday to 5.5 per cent has increased the competitive intensity that is likely to drag many 2 and 3 year fixed rate borrowers down towards a 6 month or variable rate as interest rates drop quickly. Most economists see the OCR falling as low as 4 per cent next year, meaning the variable and short term mortgage rates are likely to drop to 6-7 per cent.
Some economists, including Goldman Sachs and Deutsche Bank, are now forecasting a 150 bps cut on December 4.
Source: New Zealand Herald Online
What does this mean for us – the consumer?
Well the big thing is a saving in your mortgage which in the current economic times is going to help so many people in New Zealand. On top of falling mortgage rates we have falling petrol prices, falling commodity prices. But it doesnt just stop there. The total global downturn means the price of everything goes down such as our New Zealand Dollar which is hovering around the .50c USD mark. Our houseprices are no exception. With many houses dropping in value of up to 10% and some predict even more, some people are struggling to find the cash they once had to make the moves or fund things in the way they used to before.
This is a testing time for many people but the big thing today is that interest rates are falling. We will be recieveing more tax cuts from the national government and a big thing for many kiwis over the summer fuel is alot cheaper. Many people are sitting tight as interest rates are expected to fall further. Talk to a mortgage broker if your financing at the moment. They can offer great sound avice for the future. It is an interesting and will be a tough road ahead but I am sure if we remain smart we can ride this financial storm out alright.
November 24 2008 | Buyers and Sellers and The Market | No Comments »
The New Zealand dollar tumbled to a 2-year low versus the US dollar as the Reserve Bank
of New Zealand lowered its key interest rate by .5% points to 7.50%. The move surprised the economists who were widely expecting a 25 basis point cut. The NZ dollar also slumped to a more than 2-yearlow against the yen and multi-day lows against the euro and the Aussie.
This is the second rate cut in a row, with the first reduction in the Official Cash Rate implemented on July 24. The central bank had then lowered interest rates by .25%. At that time, the central bank signaled, that more rate reductions were to come in hopes of stimulating an economy suffering from a decline in the housing markets, commodities and credit restrictions.
The New Zealand stock market reacted positively following the Reserve Bank of New Zealand’s decision to cut its key interest rate. At 8.25 P.M. ET, the benchmark NZX 50 Index was advancing 32.00 points or 0.96% to 3,375.86, while the NZX All Capital Index was gaining 33.97 points or 1.01% to 3,409.33.
Alan Bollard has said that the move to lower the OCR is appropriate to move towards a less restrictive monetary policy stance which could suggest that they will continue cutting rates in the future as weakening economic activity is “expected to translate into lower inflation pressures in the medium term.”
Alan Bollard said “The New Zealand economy is experiencing a marked slowdown, while domestic activity is likely to pick up late this year as a result of personal tax cuts, increased government spending and rising rural incomes, we expect a prolonged period of household sector adjustment and below-average growth.”
The New Zealand dollar, which closed yesterday’s New York session at 0.6622 against the US currency, fell to 0.6494 early this morning. This is the lowest its been since October 10, 2006.
The strength of the US dollar is also weighing the kiwi. The US currency has been rallying on the back of a drop in crude oil prices. The US trade balance report for the month of July may be in the spotlight in the early New York session today. The trade deficit is expected to widen to $58.0 billion compared to the previous month’s deficit of $56.8 billion.
But what does this mean for property and Buyers in New Zealand.
Well Kiwibank has responded to the cut in the Official Cash Rate by reducing all its home loan rates.
These include 0.50 percent off its variable rate which moves to 9.7 percent and 0.36 percent off its two-year fixed rate, which moves to 8.49 percent.
Kiwibank chief executive Sam Knowles says We appear to have passed the peak of very high interest rates and we now have the opportunity to pass on some genuine savings to home owners.
Most of the other major banks are now following Kiwibanks lead but have not drooped their rates to the extent of Kiwibank who seem to be market leaders at the moment for interest rates.
Now it will be cheaper to have a home loan. So if you are buying some Real Estate make sure you get a good deal from your lending company. But all the signals are looking bright. Interest Rates are coming down, Petrol Prices are coming Down, Property Prices have come down but seem to be slowing flattening out. ALl this signals that maybe New Zealand is coming out of the Ressession and maybe about to steady out.
If you want to read a very informed article from Bernard Hickey of interest.co.nz click this link. But try and avoid taking in the negative comments from the discussion. Many people are still negative about the housing market. But in my opinion this is not the right attitude to have. If you look at the facts and the figures over the long period and talk with people out and about there seems to be some optimisum out there in terms of the New Zealand economy and housing market. The over all feel is positive.
September 12 2008 | The Market | 4 Comments »
I was today looking through articles online on The Heralds Website. This article hit me in the face. Its sad to see this. But its a fact of where we are at the moment in the market.
$375k house – costs $900 a week
Soaring interest rates will see Kiwis fork out almost a billion dollars extra in mortgage payments this year.
GE Money home lending director John Grant said an average interest hike of two per cent will affect about $45 billion of home loans rolling off fixed rates – a total of about $900 million.
The revelation comes as housing affordability continues to fall.
The latest quarterly report by Massey University’s Property Foundation shows a 6 per cent decline in the past year.
And financial pressure is being felt even by high earners, with one budget service giving food parcels to a family with a six-figure household income.
Grant predicted the increase in interest rates would cause more misery for cash-strapped Kiwis and warned unexpected changes in income could see some lose their homes.
“It’s one heck of a lot of money being channelled out of the pocket,” Grant said.
“It’s not just those with 100 per cent loans. They could have borrowed 60 per cent and be facing exactly the same predicament.”
Banking industry experts estimate there are about 600,000 mortgages in New Zealand.
Based on that figure, senior analysts say about $155b is owed, with the average mortgage about $250,000.
That’s a massive jump from 10 years ago when there was $56b in mortgage debt with an average of about $100,000.
The change is hurting huge numbers of average Kiwis with mortgages, among them first-time owners Lee Potter and Lori Clearwater.
The west Auckland couple both work 50 hours a week, with a combined annual income of $120,000, but are crippled by weekly mortgage payments of over $900 for a $375,000 house. Starting a family is out of the question, while holidays, Sky TV and a social life are also off the agenda, as the couple budget down to the last dollar.
They are weighing up a move to Australia where, even if they lost money on the sale of their home, Potter estimates they could double their income and quickly end up better off. Sick of forking out “dead money” in rent, the couple approached banks for a 100 per cent $375,000 loan when the Sunnyvale house next door to Lori’s mum came up for private sale.
“They welcomed us with open arms. We were quite surprised when they said we qualified,” says Potter, an engineer.
“We would have needed a $32,000 deposit and it was just too hard to try to save that amount.”
Before becoming homeowners, the couple had money to spare, but the mortgage has put a stop to that – and their social life.
“We always had that bit of extra cash. Now, we only buy what we need.
“Then again, it’s not dead money any more, I’m not paying someone else’s mortgage.”
Potter says he’s sickened to think about how much he and Clearwater, an electrician, have paid in rent.
Now they also have to cope with a $1400 rates bill, which had risen more than $100 in the eight months the couple have owned the house.
They’re on a fixed 9 per cent mortgage for 24 months and are hoping interest rates fall by the time it ends in the middle of next year – if they haven’t already decided to cut their losses and cross the ditch.#”We are in a better position than most because we pay a slightly higher interest rate anyway,” says Potter.
“I know some people who are really freaking out at the moment.”
Grant told the Herald on Sunday it was becoming harder to secure a 100 per cent loan.
GE Finance had again tightened its lending criteria in the past few weeks to offset the economic downturn and more homeowners were struggling to meet repayments.
“We are getting three times the volume of those types of enquiries.”
Many families facing mortgage misery are seeking free financial advice.
Darryl Evans from Mangere Budget and Family Support Services said 15 per cent of the organisation’s clients had mortgages – treble the figure three years ago.
Families on middle and higher incomes were increasingly needing help and some asked for free food parcels.
One client had a combined income of $140,000 but were grappling so hard with a huge mortgage, holiday home, leased car and two sets of private school fees that feeding the family had become an issue.
Mandy Paget, A mortgage broker for New Zealand Mortgage Assignments, said those hurting most were first-home buyers who had borrowed 90, 95 or 100 per cent.
With property prices slumping, the capital value increases families were relying on for security were neglible. “There is hardly any equity there. They are in no position to sell, and even if they do, they won’t make the money back.”
The reality was, once you included lenders fees and insurance, 100 per cent loans often ended up being 101 or 102 per cent.
She said rises in living costs were adding to financial hardship but assured sacrifices made now would pay off sooner rather than later.
“If they can get by for the next year or two, then they should be okay. They will need to restructure their life and really budget, but houses will come back in value. In five years time houses will be much more expensive than they are now.”
There was also a glimmer of hope from Hayden Atkins, New Zealand economist for Macquarie Capital Securities. He believes interest rates may drift slightly higher but are “close to their peaks” and should ease at the end of this year.
But there is little comfort for people saving to join the property ladder
April 22 2008 | The Market | No Comments »
Here is an interesting article that i think everyone needs to read and understand, it could be doom and gloom but just take it in and appreciate where the country is at. This was published on www.wsws.org By John Braddock 24 March 2008
Bank of New Zealand (BNZ) economists warned last week that New Zealand was heading for a recession—and that it may already be there. One spokesman said the housing slump and global credit crunch had combined to form an almost “perfect storm”.
The drying up of available credit is continuing to put upward pressure on interest rates at a time when householders are already struggling with rising mortgage rates. At the same time, businesses are facing the prospect of rising debt servicing bills and the BNZ declared the impact of the credit crunch was only just beginning to be felt. The statement came the same day the share market dropped $850 million, or 2 percent, in value.
In a front-page article on March 7 headlined “Prepare for pain in the pocket”, the Dominion Post said that householders should “brace for prolonged pain as power and petrol prices rise, and with little relief in sight from punishingly high mortgage rates”.
Amid the catalogue of grim economic news, the Reserve Bank announced it would not consider a drop in interest rates until the second half of next year at the earliest, despite a housing slump and deteriorating economy. It warned that, due to world events, higher interest rates were “the new reality”. New Zealand already has the highest interest rates in the OECD; the current lending rate for house mortgages is running at 10.7 percent, up from 10.5 percent in February. In the past year alone, interest costs on a two-year mortgage have risen by more than 14 percent.
Last July, a visiting US economist predicted that the New Zealand economy was on a “death spiral”. The comments by Steve Hanke, fellow of the Cato Institute and professor at Baltimore’s Johns Hopkins University, came as the New Zealand dollar hit US80c, a record since it was first floated in 1985 and a rise of 27 percent in six months. It remains at the same level eight months later, crippling many exporters.
According to Hanke, to fight inflation the Reserve Bank hiked interest rates, but because New Zealand had higher interest rates than other developed countries and a small economy, it attracted a flood of capital from offshore where rates were lower, pushing up the exchange rate. He said this aggravated the inflation problem and the central bank then had to increase rates and start the whole cycle again. He concluded; “It’s obvious to everyone that this isn’t the paradise that everyone thought it was.” The Reserve Bank has hiked interest rates no less than six times since early last year.
The bank has now warned there is the potential for a severe downturn in house prices. According to figures released last week by the Real Estate Institute, prices, which are down as much as 10 percent this year, fell for the third month in a row in February. The institute claims prices are now at a “tipping point”—poised to go into reverse for the remainder of the year. The housing market has entered a slump, with sales volumes slipping to their lowest in seven years, while the time it takes to sell a house has risen rapidly to an average of 50 days. Deutsche Bank chief economist Darren Gibbs predicted that falling house prices were set to become a “significant drag” on the economy, and that the market was already sliding faster than the Reserve Bank expected.
Escalating financial pressures on working peopleAs the US-led international recession gathers pace, the economic shocks are impacting sharply on the daily lives of working people in New Zealand, like those of their counterparts around the world. No-one remains unaffected, with most households facing deepening concerns over their budgets, household expenses, mortgages and financial security. For ordinary people, the daily and weekly struggle to make ends meet has taken an ominous turn, with recent indicators revealing rising prices hitting basic household items.
According to figures released last week by Statistics New Zealand, food prices rose 5.2 percent in the year to February. Grocery foods were the worst hit—the cost of dairy products has soared, with butter costing twice as much as it did last year. In the past month alone, milk has risen by 4 percent and bread by 3.4 percent. Overall, meat poultry and fish prices went up 3.9 percent in the past year. Poultry rose by 10.4 percent. Costs for restaurant meals and ready-to-eat food rose 4.2 percent and non-alcoholic beverages by 4.8 percent.
With a three cents per litre hike last week, motorists are now paying record prices for petrol. All the major companies lifted their pump prices after oil hit the $US110 mark. It now costs $NZ1.78 a litre for 91 octane and $1.83 for 95 octane. The Automobile Association is predicting that petrol will cost over $2 per litre by the end of the year.
Signalling that working people are already being forced to reduce their spending, core retailers—excluding those in fuel and vehicles—are reporting their flattest sales period since the Asian economic crisis some 10 years ago. The retailer The Warehouse Group, the dominant discount homegoods supplier in working class areas, last week reported net profit for the year was down 5.1 per cent to $57.1 million, while its operating profit declined 10.8 per cent to $83.3 million.
After nine years of steady increase, core retailing figures have been flattening out since April last year. Statistics NZ figures for January showed that on a seasonally adjusted basis, total retail sales rose just 0.3 per cent. However, the biggest contribution to the rise came from a 2.1 per cent surge in supermarket sales, in large part a reflection of rising food prices. Fifteen of the 24 core retail industries reported drops in sales. The biggest falls came in takeaway food (down 6.1 percent), appliances (3.1 percent) and department stores (1.8 percent).
The Sunday Star Times noted this week that essential items such as petrol, household energy, local authority rates and vehicle running costs have all “spiked dramatically” since Labour came to power, by more than the official rate of inflation. In the past year alone, food price rises represented a quarter of the increase in the total consumer price index (CPI). That and necessities such as local council rates, rubbish disposal, water charges, telecommunications, electricity and gas and petrol were responsible for two-thirds of the total increase. The rise in essential items has hit those with the lowest disposable income hardest, as they are forced to spend the highest proportion of their income on basics.
Financial sector collapsesAccompanying the pressure on household living costs has been a series of business failures and job losses.
On March 7 the country’s principal carpet maker Feltex announced the closure of two of its plants. The decision will devastate the regional towns of Foxton and Feilding where Feltex is a long-term employer. The plant at Foxton made tufted carpet and the plant at Dannevirke produced yarn. Around 160 workers will be affected by the two closures.
A company spokesperson said there had been no investment in the plants for 15 years and they had become uneconomic. Although other jobs have been offered at the Dannevirke, Wiri and Lower Hutt plants, most of the laid off workers will be unable to transfer to the main centres because of the wide difference in housing costs. One worker bitterly joked that if he managed to sell his house in Foxton he could buy a letterbox in Auckland. A spokesman for the National Distribution Union (NDU) noted at least 15 cases where multiple family members will lose their jobs. Many of the workers are responsible for young families, while others who are just a few years away from retirement will find it difficult to get new jobs in the local area.
The Australian company Godfrey Hirst, previously Feltex’s main Australasian competitor, bought the NZ business from receivers in 2006. It almost immediately shut the Riccarton plant in Christchurch, with the loss of 134 jobs. The new round of closures came after the NDU had already delivered “efficiency gains” and reductions in take-home pay through an agreement on shift changes. Workers were earning a miserly $14-$16 an hour.
Union officials were on hand at the meetings where the closures were announced and promptly declared they would meet with the company to “discuss the restructuring plans” and to organise the sacked workers onto unemployment benefits. The union has only a “very modest” redundancy agreement with Godfrey Hirst, with significantly lesser conditions than those that applied under the previous owner.
In the finance sector, thousands of desperate small investors have become embroiled in a series of collapses and have lost millions of dollars of their life savings. The most recent involved Australian-owned Blue Chip Financial Solutions (BCFS). In February nineteen property management companies associated with BCFS were forced into liquidation, and reports indicate that as much as $58 million may be owed. The liquidator told a meeting of 200 investors—mainly retired couples—that it was one of the worst company collapses he has handled. He indicated that, at best, the more than 2000 investors around the country might recover 50 cents in the dollar after the web of Blue Chip companies was unravelled.
In less than two years, some fourteen finance companies have collapsed, with the rate accelerating since the onset of the US sub-prime crisis in the middle of last year. The extent of losses is now as bad as in the period of the 1987 share market crash. Recent collapses include; Five Star Consumer Finance (August 30, owing $50 million), Property Finance (August 29, debenture debts of more than $80 million and loans of more than $630 million), Nathans Finance (August 21, owing $166 million to 6,000 investors), Bridgecorp (July 2, owing nearly $500 million to 18,000 investors). The toll for tens of thousands of small investors has reached more than $NZ 1.2 billion.
Prime Minister Helen Clark, her Labour government—and their accomplices in the trade unions—have done nothing to address this deepening crisis. For most of its nine years in office, Labour has presided over a buoyant economy fuelled by high world prices for export commodities and a booming share market. The principal beneficiaries have not been working people but a thin layer of wealthy investors and the corporate elite.
The downturn in the economy has seen a significant shift among vast layers of the population against Labour. With no progressive alternative within the parliamentary setup, this is expressing itself in a rise in support for the conservative opposition National Party, which has run a populist campaign promising to boost household incomes with substantial tax cuts. Just six months out from the 2008 elections, National has opened up a consistent 20 point lead over Labour in the polls, and on current figures could govern alone without having to enter a coalition with any of the minor parties.
Neither Labor nor National represent a way forward for New Zealand workers. The only way the working class can defend its own independent interests in this new period of spiralling economic crisis, militarism and war is to turn to the building of a new political movement, in unity with workers in Australia, the Asia-Pacific region and throughout the world, grounded on the perspective and program of socialist internationalism. That is the perspective of the WSWS and the Socialist Equality Party.
April 22 2008 | The Market | No Comments »
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.
