Cairns Lockie Mortgage Commentary 14 March 2008

Cairns Lockie Mortgage Commentary

Issue 2008 / 3 14 March 2008

Welcome to the third fortnightly Cairns Lockie Mortgage Commentary for 2008. We aim to keep you informed on developments at Cairns Lockie, Home Loans 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 (8 am on 14 March 2008) the money markets were at the following levels:

Official cash rate 8.25% (unchanged)
90 day bill rate 8.90 (up from 8.88)
1 year swap rate 8.75 (unchanged)
3 year swap rate 8.19 (down from 8.23)
10 year bond rate 6.36 (down from 6.37)
Kiwi dollar 0.8074 (down from 0.8160)

Interest Rates

Since the sub-prime crisis (which commenced in August last year) both the USA and UK have cut their overnight cash rates. Only two countries in the world have actually increased them and appear out of step with all other central banks - they are Australia and New Zealand. Both have increased rates for similar reasons, citing high commodity prices, low unemployment and inflation. In both cases, as a result, their respective exchange rates have risen substantially. It is pleasing to note that the economists at the ANZ Bank here in New Zealand are saying the Reserve Bank should be able to cut rates sooner than anticipated. The reasons give are that the housing market has slowed right down and retail sales are also easing. This may not initially bring much relief to those with mortgages as the cost of credit is still continuing to rise but at least the borrowing public will know at long last our rates may be nearing their peak.

Residential Property Market

The slowing of the housing market is now occurring according to the Real Estate Institute of New Zealand. The median price of residential dwellings New Zealand wide now stands at $337,500, up just 0.74% from February 2007 at $335,000. The Auckland market has actually seen a price drop, the median price last month was $427,000 compared to $432,750 a decrease of 1.33%. The big change over the past year is the length of time it is taking to sell a property - this has increased on a year ago from 32 days to 50 days. On top of this, the number of dwellings being sold has slowed to 6,356 in February 2008 compared with 9,357 the year before. This is well off the peak of 10,145 in February 2005.

Mortgage Rates Across the Tasman

Those across the Tasman with mortgages are now experiencing the New Zealand syndrome - ever increasing mortgage rates. Over the past six months the Reserve Bank of Australia has increased their overnight cash rates on a number of occasions. The standard variable rate is now over 9.0% and most banks are around 9.3%. The majority of non banks are still below 9.0%, as this is the part of the market they are most competitive in. The three year fixed rates tend to be around the 8.6% to 9.0% level. For the last 10 years the floating rates have been lower than the fixed rates and so most Australians have floating rate mortgages. With more rate rises expected in the coming months, this may be about to change as Australians are likely to switch from higher floating rates to more stable and lower fixed rates.

Competitive Rates on Deposit

Our subsidiary company, General Finance Limited is taking deposit funds. We offer our investors a competitive rate of 11.25% for an eighteen or twenty-four month deposit. All investors are secured under our trust deed. These funds are then lent on residential properties, with either a first or second mortgage taken as security. The funds are lent for short term uses only, mostly up to 12 months, mainly as bridging type loans.

Our current mortgage interest rates are as follows:

Variable rate 10.40%

No Financials Home Loan 11.00

Jumbo Loan 10.40

One-year fixed rate 10.28
Two-year fixed rate 9.84
Three-year fixed rate 9.74
Five-year fixed rate 10.04

Line of credit facility 10.50

ENDS

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