Cairns Lockie Mortgage Commentary

Cairns Lockie Mortgage Commentary

Issue 2009 / 13   31 July 2009

Welcome to the thirteenth fortnightly Cairns Lockie Mortgage Commentary for 2009.  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 evening (4 pm on 30 July 2009) the money markets were at the following levels:

Official cash rate    2.50% (unchanged)

90 day bill rate       2.79 (unchanged)

1 year swap rate    3.04 (up from 3.02)

3 year swap rate    4.66 (up from 4.51)

10 year bond rate   6.23 (up from 6.22)

Kiwi dollar             0.6500 (up from 0.6421)

Official Cash Rate

The Reserve Bank has, in their statement announced today, decided to leave the Official Cash Rate (OCR) unchanged. They reiterated that economic conditions remain challenging and there may be further cuts if current conditions persist. Interest rates are likely to remain low, well into 2010.  They are concerned about the high exchange rate, over which they have little control, and which is not assisting our recovery. Overall the economy remains weak and there will be further increases in unemployment. The downturn in farm incomes will have a negative effect on the rural sector and those towns servicing that sector. Inflation is easing which is positive.  For those with mortgages there will be little change in rates, as a result of this announcement.

New Sale and Purchase Agreement

A new plain English sale and purchase agreement has been developed by the Real Estate Institute of New Zealand (REINZ) and will shortly be available to vendors selling their properties. The Real Estate Institute says it is a more user friendly document. It does not replace the existing sale and purchase agreement which has gone through eight iterations, and has been around for decades. Making documents easier to understand is a good idea but having two different documents is not. We believe there should be one standard document to avoid confusion.

Households are Getting Smaller

The size of our households (i.e. the number of people living in a single dwelling) is decreasing. The average household has 2.6 people and this will reduce to 2.4 over the coming 20 years.  This is largely a result of fewer two parent households with children, and more couples not having children. At the same time, our houses are getting larger.  From 1990 to this year, the average house size has increased by 39% (from 140m2 to 195m2). New Zealand has, on average, the third largest houses in the world after the USA and Australia. Canada is next.  We cannot really compare ourselves with the UK and Europe where the main housing type is apartments, which are half the size of a New Zealand stand-alone dwelling. A large personal residence is one advantage of living in this country.

New Residential Construction is Down

The number of new houses being built in New Zealand is still falling and many in the industry have little forward work arranged. For the year to June 2008, 20,902 new housing consents were issued.  For the year to June 2009, this was down to 12,309 - the lowest figure since records began in 1965. If apartments were included, this figure was 14,175.  For the previous five years the average was 23,219. Despite low mortgage rates and slightly rising immigration figures, new housing consents are likely to remain down due to housing developers’ lack of ability to obtain finance. Housing construction was core lending for many finance companies and this sector has been considerably reduced over recent times. Banks have never been keen on this sector and are most unlikely to get more involved. As a result, in the short term, we will see the supply of dwellings becoming tighter.

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