Cairns Lockie Mortgage Commentary

Cairns Lockie Mortgage Commentary

Issue 2009 / 16   11 September 2009

The Money Market

This morning (9am on 11 September 2009) the money markets were at the following levels:

Official cash rate    2.50% (unchanged)

90 day bill rate       2.78 (up from 2.77)

1 year swap rate    3.03 (down from 3.12)

3 year swap rate    4.63 (down from 4.74)

10 year bond rate   6.00 (down from 6.10)

Kiwi dollar             0.6960 (up from 0.6790)

House Prices Again

According to QV Valuations, house prices are climbing back towards last year’s levels, after four months of increasing sales values. The national average sale price for August (New Zealand wide) was $385,426, only 2.8% below the same period last year. The main reason for this recovery is the shortage of stock and the demand for properties which is reasonably good.  Again QV Valuations note that this is a surge rather than start of a boom. The Auckland market is recovering as well - the average sale price for August was $564,319, only 1.8% off the corresponding figure from August last year.

Interest Rates

The Governor of the Reserve Bank announced no change yesterday to the Official Cash Rate (OCR). This was not unexpected. Wholesale interest rates are at an historic low, so any further easing is most unlikely. The only real reason to lower interest rates further, would be if our currency appreciates too much.  Our currency has been appreciating against all the other main currencies but according to the Reserve Bank, it is still at manageable levels. The comments made by the Reserve Bank yesterday are revealing and informative. They are saying the decline in economic activity is coming to an end and a patchy recovery is underway. They note however that the medium term outlook remains weak.  Inflation is not a worry – this is positive for the lower interest rate regime. They expect short term interest rates to remain at their current levels for at least a year.  This is a more positive outlook than six or twelve months ago.

Building Costs

The outstanding building work in the residential construction sector is currently $6.3 billion down by 25% on the 2007 figure of $8.4 billion, according to Statistics NZ. This is not unexpected, as we are still in a recession and construction activity slows down in recessionary periods. We believe another reason is the considerable contraction in the finance company sector - there is considerably less finance available to fund new home construction, apartment developments and section sub divisions. As a result of this decreased availability of finance, the amount of outstanding building construction work may continue to decrease. This is not good for the economy as this sector is a strong employer of people.

New Funder

The last two years has been difficult for the non-bank mortgage sector as various wholesale funders have withdrawn from the market due to the international credit crisis. We are pleased to announce that we have a new funder who is willing to write more asset lend products. We have released new Asset Lend 60 and No Financials 75 mortgage products. Where they differ from the old lo doc type products, is that some form of basic confirmation of income is required. The level is lower than what is required for a fully verified prime rate mortgage. As a result the interest rates are higher on these products with a mortgage rate of 8.49% for one year fixed. These rates are higher than the prime rate mortgage but lower than finance company and bridging rates. We believe these products fill an interesting sector of the market and will be well supported.

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