Cairns Lockie Mortgage Commentary
Issue 2006 / 21 17 November 2006
Welcome to the twenty-first fortnightly Cairns Lockie Mortgage Commentary for 2006. We aim 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 (8am on 17 November 2006) the money markets were at the following levels:
Official cash rate 7.25% (unchanged)
90 day bill rate 7.64 (up from 7.58)
1 year swap rate 7.67 (up from 7.65)
3 year swap rate 7.30 (down from 7.31)
10 year bond rate 5.77 (up from 5.72)
Kiwi dollar 0.6600 (down from 0.6725)
Ten Year View of Residential Property
Over the long term the property market performs well, so it is interesting to look at our market over the past ten years using figures provided by the Real Estate Institute of New Zealand. As at the end of September 2006 the median price of a dwelling in this country was $313,000. In 1997 it was $164,000. This represents an increase of 90.9% or 6.7% per annum. In Auckland we have a median house price of $397,500, a ten year increase from $235,000 or 5.40% per annum. This is well up on the annual inflation rate of 2-3%. House sale volumes have increased with 8,671 sales this year compared with 6,819 in 1997. During the current year it is taking on average 31 days to sell a dwelling whereas it took 34 days in 1997. Over the past 10 years this has ranged from 24-51 days. So it is reasonable to suggest that over the past 10 years, property has been a good investment, providing a return greater than the rate of inflation. What is surprising is that it has been a relatively liquid investment with most properties being able to be sold with a two month period and in many cases less than this.
Uses of Bridging Finance
Through our subsidiary company, General Finance Limited we are active in the bridging finance market. Bridging finance is short term finance, often for a year or less and is generally used to complete a specific project. For example you may be moving to another city, but have not sold your existing house, yet bought another and need some short term funds to complete the transaction. Once you have sold your existing dwelling you can then put your finances on a more permanent footing. Another use for bridging finance is to fund an opportunistic buy with a view of adding value to either sell, or hold with cheaper longer term funding. If you require this sort of funding we would be pleased to assist.
Mortgage Rates in Australia are Going Up
Many of us like to compare our conditions at home with those across the Tasman. One area that is more favourable on the other side of the ditch is mortgage rates but the gap is starting to narrow. This year the Australian Reserve Bank has increased their overnight cash rate twice with a likely third increase next month. Our last increase was in December 2005. Floating rates range from 7.10% to 8.20% with the average bank rate being 8.07%. In this country floating rates have a much narrower range of between 9.10% and 9.55%. In Australia the two year fixed rates, range from around 7.20% through to around 7.60%. On this side of the Tasman they range from around 7.90% through to 8.20%. In Australia around 90% of all mortgages are written at floating rates whereas here at least three quarters of mortgages are written at fixed rates. Most borrowers tend to go for the part of yield curve which is lowest - in Australia it tends to be at the floating rate whereas in this country it is most often the two to three year rates.
Good Result for General Finance Limited
General Finance Limited had a satisfactory six monthly result to 30 September 2006. Profit before tax was $373,778 which compares favourably with the full year to 31 March 2006 of $473,555. Total assets have grown to $8.98 million up from $8.34 million in March. There have been two other positive developments: paid up capital has increased to $1.5 million from $1.0 million and total shareholders funds are $2.13 million, up from $1.88 million in the previous period. The demand for loans remains reasonably firm but a bit slower than this time last year. All loans are secured over residential properties. If any investor would like a full copy of our six monthly accounts please feel free to contact us or you will be able to download one shortly from www.general.co.nz.
Our current mortgage interest rates are as follows:
Variable rate 9.20%
No Financials Home Loan 9.80
Jumbo Loan 9.20
One-year fixed rate 8.73
Two-year fixed rate 8.09
Three-year fixed rate 8.17
Five-year fixed rate 7.98
Line of credit facility 9.30
Cairns Lockie Limited
Cairns Lockie Limited is not a Registered Bank.