Cairns Lockie Mortgage Commentary - 28 July 2000

Issue 2000/14 28 July 2000

Welcome to the fourteenth issue of the Cairns Lockie Mortgage Commentary for 2000. This is a fortnightly electronic newsletter which aims to keep you informed on developments at Cairns Lockie, Mortgage Bankers and the mortgage market in general. Previous issues of this commentary can be found on our website http://www.emortgage.co.nz/newsletters.htm

The Money Market

This morning (9 am on 28 July) the money markets were at the following levels:

Official cash rate 6.50% (unchanged from last fortnight)
90 day bill rate 6.84 (up from 6.82)
1 year swap rate 7.12 (unchanged from 7.12)
3 year swap rate 7.28 (down from 7.30)
10 year bond rate 6.70 (down from 6.77)
Kiwi dollar 0.4575 (down from 0.4620)

Cairns Lockie Lowers its Rates Again Again Again

When will it stop? Following a reduction in fixed rates last week we have further lowered our three and five year rates. Our new rates are as follows (with old rates in brackets):

2 years fixed - 8.35% (unchanged)

3 years fixed - 8.38% (8.45%)

5 years fixed - 8.45% (8.50%)

A year ago the difference between the variable rate and the five year fixed rate was 230 basis points. Now it has narrowed to 10 points. Have interest rates peaked?

The Seven Year Property Cycle

Could good times be here again for homeowners and residential property investors? Over the past 30 years, there has been a general cycle with house prices rising quickly every 7 -8 years. The boom years have been 1973/4, 1981/2, 1987/8 and 1994/5. Based on these figures 2001/2 may be a good year for the residential property sector. One cautionary note however. Each price appreciation had been proceeded by a period of inflation. Certainly over the past two or three years this has not been the case. We will have to wait and see.

Economists are now Predicting Steady Interest Rates

Earlier this year economists were predicting substantial increases in interest rates with mortgage rates predicted to peak at close to 10%. Now the majority of economists are predicting that the Official Cash Rate (OCR) may not change in the coming review in August. Some are even predicting there may be only one further increase of 0.25% to mid next year. The reason for this change in sentiment includes weaker business confidence from the effects of higher interest rates, taxes and petrol prices increases.

Planning Consents for New Homes Continue to Decrease

Most of us are aware that the volume of house sales is down. The same is true for planning consents issued for new dwellings. For May, (the latest figures available) new housing consents were 1598, down 24% on the previous month. The fall continues an 11 month trend, but the rate of decline has been slowing.. A total of 10,315 new dwellings were approved in the first half of this year. This was down from 13,929 from the same period last year.

Times are Better Now

The media has been commenting recently on the effect on borrowers of higher mortgage rates. To put this in perspective we should look back 10 years to 1990 and 20 years to 1980. During 1990, NZ was in a recession with mortgage rates in the 14-15% range. Fixed rate mortgages were starting to make an appearance, with a number of institutions offering only a one year fixed rate product. Back in 1980, the mortgage market was totally regulated. Home loans were effectively rationed. You had to have a savings history with your Trustee Bank or Building Society. Often you could not borrow the full amount and had to apply for second mortgage finance as well. Mortgage rates at this time were around 10% and rising. Inflation was at a similar level. Certainly today things are better: we have lower mortgage rates, lower inflation, a much wider product range and greater ease at obtaining finance.

20 Ways to Save Money on Your Mortgage

Now our most popular page at http://www.emortgage.co.nz/save.htm (after less than a month) See also the Consumers' Institute at http://www.consumer.org.nz/banks/m_save.html

Our current interest rates are as follows

Variable rate 8.35%
Two-year fixed rate 8.35
Three-year fixed rate 8.38 (down)
Five-year fixed rate 8.45 (down)
Line of credit facility 8.70

Regards
William Cairns
James Lockie

Cairns Lockie Limited
PO Box 74-212, Market Road, Auckland
Telephone (09) 525 9711
Facsimile (09) 579 7795
Website http://www.emortgage.co.nz
Email mailto:wcairns@emortgage.co.nz
mailto:jlockie@emortgage.co.nz
mailto:gslade@emortgage.co.nz
mailto:sgasson@emortgage.co.nz
mailto:plange@emortgage.co.nz

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