Cairns Lockie Mortgage Commentary 8 Oct 2010

Cairns
Lockie Mortgage Commentary

Issue 2010 / 18 8 October 2010

Welcome to the eighteenth fortnightly Cairns Lockie Mortgage Commentary for 2010. 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 (9am on 8 October 2010) the money markets were at the following levels:

Official cash rate 3.00% (unchanged)
90 day bill rate 3.17 (up from 3.16)
1 year swap rate 3.48 (up from 3.42)
3 year swap rate 4.00 (up from 3.98)
10 year bond rate 5.13 (down from 5.15)
Kiwi dollar 0.7501 (up from 0.7325)

Auckland Council Elections

This weekend we will know the results of the city council elections from across the country. In Auckland there will be substantial changes due to the creation of one large territorial authority covering the whole city. What we are really creating is a state government similar to those which exist in Australia. For example the State Government of South Australia is only marginally larger than the new Auckland city council, covering a population of 1.6 million whereas Auckland has an overall population of $1.4 million. A few areas where Australian state governments have made an impact, and our new elected council should do as well, is in the areas of integrated public transport and ensuring we have adequate roading to service our increasing population. The old community boards will become something similar to the old borough councils predating the 1989 council amalgamations. This is a major reform for Auckland and let’s hope that we see some major improvements over the next three years, without any significant changes to our rates.

On-going Rent or Buy Debate

It is interesting that every five years or so, the debate re-emerges as to whether it better to buy or rent. Generally some economist puts forward a strong argument as to why it is better to rent than buy. On all previous occasions they have proved to be wrong. The issue really is a personal choice. If you value maximum flexibility in your life so you can easily move from say city to city or country to country, or you have some very time consuming hobbies, it may be better to rent. If you lead more of a traditional lifestyle, and your cash flow permits, it may be better to buy. Once you have bought a house you are no longer at the whim of a landlord, you can constantly improve your property which is likely to increase its value plus if you have a reducing mortgage (and we suggest you should) then one day you will have an unencumbered property and you will not need to pay either rent or a mortgage. This is a useful debate to have but we believe in most cases it is better to buy.

Why the Market May Be Quieter

It has been reported in the media that residential sales volumes are down on last year and prices are relatively flat. There are a number of reasons for this. Immigration is down - there are fewer people coming to this country and there is some evidence that the number of New Zealanders leaving for Australia has picked up. The second reason is that our exchange rate is high particularly against Sterling, the Chinese Yuan and the US dollar. It makes this country more expensive for buyers from these jurisdictions. We are still in recession and with some potential buyers their employment may be at risk, which makes them more likely to delay the purchase decision. The market is likely to continue in its present form until one or more of the above factors change.

Rents Increasing

According to the national auction site Trademe, rents are on the rise. Nationally rents have increased around 5% over the past year. In Auckland the figure appears to be around 11%. Our discussions with real estate agents confirm this as well. The recent GST rise makes rates, insurance and repairs and maintenance more expensive for the owner and these are ultimately passed on to tenants as higher rents. Any improvement in our economy, such as lower unemployment will cause more young people to go flatting which will increase the demand for rental properties. Landlords are recognising that capital gains of their properties have slowed, so any increase in rentals positively affects their overall return.

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).

Regards
William Cairns
James Lockie

ENDS

© Scoop Media