Cairns Lockie Mortgage Commentary

Cairns Lockie Mortgage Commentary  

The Money Market
 
This morning (8 am on 13 March 2009) the money markets were at the following levels:

Official cash rate    3.00% (down from 3.50)

90 day bill rate       3.38 (up from 3.26)

1 year swap rate    3.00 (up from 2.90)

3 year swap rate    3.70 (up from 3.60)

10 year bond rate   4.75 (up from 4.50)

Kiwi dollar             0.5130 (up from 0.5100)

Reserve Bank Lowers Rates

Yesterday the Reserve Bank reviewed the Official Cash Rate (OCR) and lowered it from 3.5% to 3.0%. We now have a lower rate than Australia which is at 3.25%. Our rates are still relatively high by world standards - USA is at 0.25% (i.e. a quarter of a percent), and Japan at 0.10% (a tenth of one percent). The European zone at 1.50% and the United Kingdom is at a 350 year low of 0.50%. Some believed that the Reserve Bank Governor may have lowered the rates more, but Alan Bollard noted that it takes a while for our, already massive, cuts in interest rates to take effect and we need to wait a little longer for this to occur.  We also need to have slightly higher rates than our competitors to attract foreign funds into this country. It also allows for further cuts to be made if the world economies continue to deteriorate. Consensus is that we are near the bottom of the rate cutting cycle and there may be one further cut later in the year.

House Prices - What is Happening?

According to Quotable Value, over the past 12 months, house prices have declined an average of 8.9% across the country. Auckland had a 9.4% decline, Wellington 9.3%, the brighter spots being New Plymouth declining 6.6% and Nelson 7.3%.  The average time it takes to sell a property is now 59 days - well up on 30 days three years ago. These figures are gloomy but as we are talking to a number of real estate agents and valuers on a regular basis, a slightly different picture is emerging. Agents tell us that enquiries are up and the recent drop in interest rates appears to be starting to have an effect. Investors are noticing that many more properties are now cashflow positive, and for home buyers affordability has improved.  This upturn in confidence was noticed in the February figures with 40% more houses being sold in that month than in the somewhat quiet January. We really have to wait for the March and April figures to see if an upward trend is emerging.  The figures last month were the first hint of something positive in the housing sector for over a year. 

Unexpected Consequences of Falling Rates

An often overlooked consequence of falling interest rates is that the income of our elderly citizens is reduced. Many retired people live off national superannuation and traditionally have some extra funds deposited at their local bank. A year or two ago, call and short term rates were around 8% so if a retired person had a $100,000 invested they were earning around $8,000 additional  income per year. Rates have fallen to 2-3% so the $8,000 of income has reduced to $2-3,000 - a significant drop. This will explain why the recent bond issues such as Fonterra (yielding 7.0 -8.5%) have proved so popular. On the other hand, those who have borrowings such as mortgages (provided they are not fixed at high rates) will be better off. Another group that benefits from lower interest rates is the business sector, which can expand on the back of cheaper money. Overall lower interest rates offer considerable benefits to an economy. 

Unit Titles Act to be Overhauled

The Unit Titles Act 1972 is being changed and updated as more and more people are living in multi unit type apartment complexes. Under the proposed changes, body corporates will no longer need to obtain a unanimous vote on a decision - a 75% majority will suffice.  Any repairs that affect more than one dwelling will be the body corporate’s responsibility. The tenancy tribunal will be used to settle disputes, and this will be cheaper and quicker than the district court.  However, one negative of this is that body corporate fees may rise. We hope the new Act will contain a mechanism for obtaining quicker payments from defaulting payers. We suggest a clause that allows the body corporate to be able to register a caveat on a defaulting payer’s title.
 
Mortgage Interest Rates

For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender (below) or the Cairns Lockie Limited Loan Administration Department (below).

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