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
New Zealands Official Cash Rate has been cut again to 2.5% which is a further sign that the Reserve Bank is trying to stimulate the economy. Dr Alan Bollard this morning said to the people that he sees the Official Cash Rate being low for around the next 18 months as the economy is finding its place and evening out.
Bollard says “We expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters,” he went on to say; “The world economy deteriorated further than expected in the first quarter of 2009. While monetary and fiscal policy responses in many countries have been substantial and there are some signs of stabilisation in some countries, we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and e
xtent of global recovery remain highly uncertain.”
The OCR is the lowest it has been for 10 years and is now at a record low for New Zealand. Bollard wants to see banks passing on this cut to the consumer. The last OCR cut saw an increase in the 5 year interest rates which didnt impress many of the NEw Zealand public but due to the high cost of borrowing from overseas the banks couldnt sustain the low rate on the 5 year loans. To the right is the graph of the OCR trend in the previous 5 years; picture supplied by Christoph Lukasser
Westpac Bank has moved quickly in response to the OCR cut, saying it was cutting its 6 month home loan rates by 0.4 per cent. This brings its 6 month home loan rate to 5.39 per cent, due to come into effect this Friday. As with most times when the OCR is cut our New Zealand Dollar dropped again this time The New Zealand dollar plunged nearly 1cagainst the American Dollar from US57.34c to US$56.46c
Bollard went on to give a little optimism to the markets by saying; “We expect the large decline in the OCR over the past year to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing. This, together with the stimulus from fiscal policy, will act to support the New Zealand economy and eventually see activity trough and pick up thereafter. However, the scale of the global financial crisis and domestic adjustments underway are such that it is likely to be some time before econ
omic activity returns to robust and healthy levels.”
In my view there is still a long bumpy road ahead for the economy in New Zealand and around the world. The Swine Flu has not helped matters at all with already Pork exports stopped, tourists from around the world cancelling their trips and New Zealanders deciding not to travel abroad. This will cause the econonomy to retract even further than it already has and with winter on its way will hurt many businesses in the pocket. With Bollard saying the OCR will stay low for around 18 months will give businesses and people confidence of knowing what levels to look forward into, espessially over the summer of 09/10 where many businesses including mine are going to have to plan ahead for and try and grow.
It will be rather interesting to see how the New Zealand economy is going to fear in the next 6 months over the winter period with all the things happenoing in the world at the moment. What do you feel will happen?
April 30 2009 | Buyers and The Market | 1 Comment »
Again the Reserve Bank of New Zealand is dropping our Official Cash rate amid the world and New Zealand Economy falling as credit becomes tight and people stop spending money like they have in the past few years. The new OCR rate of 3% is a 50 bias point drop on what it was at 3.5%. The total drop in the past two months has been 2%. But is this enough to stimulate our economy enough to give it the spur of life that it needs.
Reserve Bank Governor Alan Bollard said: “The world economy deteriorated very rapidly late last year, amid ongoing losses and extreme volatility in international financial markets. While monetary and fiscal policy responses in many countries have been substantial we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and extent of global recovery remain highly uncertain.
One point I would like to note which seems interesting to me is that as you can see by the picture of the NZD against the USD as soon as the OCR rate cut was announced we saw about a half a cent rise in its value and this value has stayed constant all day. In my view this is a good sign to look at as this means that investors have got some confidence in our dollar and its performance. Also as a side note we saw fuel drop in price by .5c a liter today at 12pm which will make everyone a little more happy.
As we are at the moment we are coming into winter which is traditionally the time when people start to wind down on the spending and save money for the summer vacations and the likes of christmas and new year parties etc. The winter sees less people moving around as well because generally most peole have settled into their new jobs and the children are into their school routine and people tend to sit down and not do as much. This year has seen many people get into that routine alot earlier and many are going to find this winter very difficult.
Although sales volume for Real Estate was the highest in about a year at just over 5200 sales recorded for the 28 days in Feburary it was still the lowest recorded sales volume for 10 years. This gives us a clear indication that people are not buying at the moment. I do believe though that the interest rate drops from the OCR are going to give the housing market a boost as there are some great oportunities out there to buy if you have the equity to borrow you will most likely be able to find a property out there that will return a positive cash flow now.
I myself have been going around Christchurch doing a small survey and talking to almost every business owner in dairies, supermarkets, fish and chip shops etc etc and generally the same message is coming accross is that business is tight. People are not spending money but there is a trend for what people are spending more money on. The trend seems to be that people are spending more money in the stores where they can get their entertainment and take it home. So instead of people going out for dinner, going to the movies and going to the bars it seems people are buying those items from video stores and bottle stores and are taking those back home and entertaining at home. This is one way to save money.
It will be very interesting to see how much of this rate cut will be passed to the consumer over the next few weeks.
March 12 2009 | Uncategorized | 2 Comments »
Well it is interesting to note that now after almost 5 weeks ago the OCR dropping to a record low in New Zealand of 3.5% the banks are now only just starting to pass the interest rates to the consumer. I am aware that the banks are facing increasing pressures as the sost of buying the money from over seas increases and our New Zealand Dollar drops further and further against the greenback (USD) which as of this morning was hoverng at a 6 year low of .49c
One notable company I have noticed that are being very competitive is the BNZ offering a 6 month fixed interest rate of 4.99% and Kiwibank are doing some good deals. The main point is to shop areound to find the best deal. What you will find is in this every changing market the best port of call is to talk to a mortgage broker before you commit to anything. The problem being that as the economy tightens into winter and money becomes hard to come by everyone will want the business for themselves. It is important not to get into this channel as there is so much happening every day that you need to be alert and aware.
Thats why I say get a mortgage broker you trust to help you. They are in the market and understand what is happening and in the economic times of today. A good friend of mine who is a top mortgage broker in my opinion “Kerry Kelly” is very onto it when it comes to todays market and knows how to best get finance for you. If you want to talk to her click her name which will go to her contact details and she will be able to help you no matter where you are in the country. Its worth a shot.
Below is something I read on the Herald website this morning about this very topic of banks passing on the lower interest rates to the consumer and it raises some interesting points that I think is important for everyone to be aware of when trying to get finance to buy a property in todays market.
Governor keeps heat on banks over credit
4:00AM Thursday Mar 05, 2009
By Brian Fallow
Alan Bollard
We have been putting quite a bit of pressure on the banks to ensure they are not treating New Zealand borrowers in an unnecessarily different way.
Alan Bollard, Reserve Bank GovernorReserve Bank Governor Alan Bollard kept the heat on the banks yesterday to continue lending to businesses on reasonable terms.
When Bollard appeared before Parliament’s finance and expenditure select committee yesterday, Labour’s finance spokesman, David Cunliffe, said his comment to last Friday’s job summit that the banks “should not underestimate the degree of corporate anger out there” chimed with what MPs had been hearing from major companies.
They were hearing of lending decisions now being made overseas and not by local relationship managers, Cunliffe said.
“That is a widespread concern in the corporate community,” Bollard said. “We had more discussions [with the banks] during and after the summit. My comments seem to have taken some of them by surprise.”
The banks were saying the market had got a lot more difficult, that it was harder to raise funds and riskier, and that that risk had to be passed on to corporate borrowers.
“We think that is true up to a point but it is very important they don’t go beyond that point and are there supporting investment into our recovery,” Bollard said.
“We would not want to see a home country bias [among the Australian parent banks] as is happening in
some places around the world.”
The banks said on Friday that they had increased their lending to the business sector by $3.6 billion in the December quarter and had received $4 billion in additional funding from their Australian parents.
Bollard acknowledged business sector lending had increased but said some of that was the drawing down of backup credit lines already in place plus a degree of “back-filling” of the hole left by collapsed finance companies.
Cunliffe asked if he was confident the Australasian banks were treating New Zealand corporates identically with Australian ones.
“I can’t say that,” Bollard replied, although he noted that some Australian companies were also complaining about tightening conditions and higher interest rates.
“We have been putting quite a bit of pressure on the banks to ensure they are not treating New Zealand borrowers in an unnecessarily different way – bearing in mind there are some arguments about extra risk here – or running down their balance sheets.”
Asked if he was happy about the extent to which banks were passing on official cash rate cuts to borrowers, Bollard said that at the short end of the interest rate curve there did not seem to be a big increase in banks’ margins. At the long end rates were driven more by what was happening in overseas markets.
He was more concerned about the terms and conditions of loans being tightened to unrealistic levels.
March 05 2009 | Uncategorized | 1 Comment »
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 »
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 »
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 »
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 »
The Official Cash Rate has been dropped by the Reserve Bank for the first time in five years.
Dr Alan Bollard has announced it is being dropped by 0.25 percent to 8 percent.
In his statement released this morning, Dr Bollard said “more unpleasant international news has emerged since the June Monetary Policy Statement, and there is a risk that the domestic economy will slow further. Moreover, the cost of funds raised abroad by banks has been rising in recent months as the international financial situation has deteriorated. Today’s cut will help to mitigate the effect of these increases on the actual borrowing costs paid by firms and households.”
He has also hinted at further cuts to possibly come by saying that “Consistent with the Policy Targets Agreement, the Bank’s focus will remain on medium-term inflation. In this regard, it is important to note that monetary policy has been reasonably tight for some time, and is now restraining activity and medium-term inflation pressures. Provided that the outlook for inflation continues to improve and there is no excessive exchange rate depreciation, we would expect to lower the OCR further.”
Although I have been reading a few online forums and that from this news break. And many people are saying that this is just going to be another election year bribe. But for what ever reason it will definately have an impact on home buyers. With the ASB Bank already reducing their interest rates to 8.95% for two years. NO other banks have moved yet.
July 24 2008 | The Market | 1 Comment »
