By Bernard Hickey
The Reserve Bank is expected to leave the Official Cash Rate (OCR) on hold on Thursday morning and most economists believe a rate hike is unlikely before the end of this year because inflation is under control and the problems in Europe are slowing economic growth.
However, the housing market is beginning to bubble again in central Auckland and Christchurch where undamaged and watertight housing supply is limited and where migrants want to live. The prospect of low (and possibly even lower) interest rates is also encouraging some first home buyers to load up with more debt they believe they can afford.
There are few signs yet this surge in housing activity in these specific areas is spreading around the country in a similar way to the boom in prices from 2002 to 2008, although most economists see some moderate price growth over the coming year as unemployment remains relatively low, commodity prices remain high and the rebuilding boom in Christchurch gets under way. See more here in our report on the latest house price figures.
The decision to go with a fixed mortgage or floating mortgage remains dependent on any borrower's view on interest rates and how much certainty any borrower needs on regular payments.
Borrowers who are very nervous about their jobs or want to budget a fixed repayment for years to come are more likely to fix. Those who believe official interest rates are likely to remain flat or even fall because of low inflation and slow economic growth are likely to choose floating.
The interest rate outlook
Last week the outlook for inflation and interest rates changed substantially when the Consumer Price Index actually fell in the December quarter and the annual inflation rate slumped to 1.8% from 4.6% in the previous quarter. Most of this slump is linked to the removal of the October 2010 GST increase from the annual figures and a big drop in tomato and lettuce prices, but it was still much weaker than both economists and the Reserve Bank expected.
See more here in Alex Tarrant's article from last week.
Before the figures many economists expected the Reserve Bank to begin increasing the OCR from its record low current level of 2.5% from September of this year. Remember that the Reserve Bank made an emergency cut in the OCR on March 10 last year to 2.5% from 3.0% and has left it there ever since, despite suggesting through most of last year that it would have to increase it back to more normal levels.
However, the economy has stuttered along ever since then as many households try to save money and repay debt, and the European economy slumped into a sovereign debt crisis. Also, the Christchurch rebuild has been slow to get under way because of problems with insurance, zoning and new earthquakes.
The Reserve Bank forecast in December that it saw short term interest rates increasing from midway through this year with an implied OCR peak in 3.75% later next year. Assuming the relationship between floating mortgage rates remain the same (about 3% above the OCR), then floating mortgage rates would peak at around 6.7% by the end of next year, which would make two year fixed rates being offered right now of around 5.8-6% relatively attractive if you assume the Reserve Bank is correct.
Financial markets, meanwhile, are expecting the Reserve Bank to hold the OCR around 2.5% well into next year, or even cut it, which would make floating more attractive.
Here's what the economists say
BNZ's Head of Research Stephen Toplis said this week he still expected the Reserve Bank to start increasing the OCR from its September 13 Monetary Policy Statement (MPS). Toplis then expects the central bank to hike the OCR to a peak of 4.25% over this year and next.
He expects the Reserve Bank to keep signalling rate hikes on Thursday, which means he thinks fixed rates offered for 2 to 5 year terms offer good value.
"It will surely lean on the side of emphasising a continued tightening bias than sounding in any way iffy about one. The latter would be like a red rag to the already bullish debt markets, wanting to price rate cuts," Toplis said.
BNZ Chief Economist Tony Alexander said in his January 19 weekly overview he saw the OCR on hold in 2012 and he favours floating rather than fixing.
"Locally NZ data are not suggesting the economy’s growth rate is accelerating and there are plenty of risks still to the economic outlook. Therefore, until we get some greater clarity with regard to Europe, the United States, the timing of the Christchurch rebuild, and when farmers start spending more money, I find myself still extremely happy to sit floating," Alexander said.
He sees the housing market slowly improving, "driven by a shortage of listings and lowest construction in 40 years encouraging buyers with foresight to get in before a stronger labour market brings a wave of buyers in," although he notes rental property investor activity remains weak.
Westpac's Economists see the Reserve Bank hiking the OCR from September 13, although notes the markets see the OCR on hold until Mid 2013. Westpac still sees inflation building in coming years, forcing the Reserve Bank to hike the OCR to a peak of 6% by 2015.
"We think the RBNZ will now be comfortable a later starting date, though it need not be specific about it in this Thursday’s one-page communiqué. Our pick remains for a September start, on the basis that the RBNZ will still have an eye towards post-quake reconstruction and a pickup in the domestic economy," Westpac said.
ASB's Economists expect the Reserve Bank to leave the OCR on hold until December 6. It then sees the OCR rising by 1.5% to a peak of 4% in late 2013.
"With current inflation pressures subdued, and considerable downside risks to growth, the RBNZ has no urgency to increase the OCR before December 2012," ASB said.
It expects house prices to rise nationwide at an annual rate of around 3% heading into 2012, "underpinned by a continued contained level of housing inventory."
"House price growth in Auckland is likely to be stronger than that, reflecting its relatively tighter market," ASB said.
ANZ Economists see the Reserve Bank holding the OCR for most of this year, with no great urgency to move either way because of contained inflationary pressures and the risk of a bigger global slowdown.
"At 2.5% and with pressures on capacity remaining present the OCR will eventually need to move higher, barring global meltdown. However, the RBNZ can afford to be patient," ANZ said.
ANZ is cautious about house prices.
"With household debt still very high, future increases in consumer spending (and house prices) seem likely to be income-driven rather than debt-driven as in the early 2000s," ANZ said. "We still view the balance sheet constraint (debt levels,affordability) as dominating supply-demand balance measures in terms of the outlook. The former portends a slow grind for the property market ahead."
Floating vs fixing?
Before the Global Financial Crisis this was an easy decision for most borrowers because fixed mortgage rates were almost always cheaper than floating rates. But that changed after the Lehman Bros crisis because banks were unable to find the cheap and easy short term wholesale funding that helped them keep fixed rates lower.
Since then, the Reserve Bank has also tightened funding rules that encourage banks to fund more locally and for longer terms than before. This has made fixed more expensive than floating and is likely to keep it that way.
Any decision to fix or to float depends on how quickly and how high interest rates will rise. Floating makes more sense if interest rates stay lower for longer, while fixing makes more sense if the OCR rises soon, quickly and to a high level. Fixing may also make more sense for those who place a premium on having certainty about their repayments, regardless of whether they are higher than staying on floating.
Also see our calculator for working out whether fixing or floating is cheaper over the life of a fixed term mortgage.
My view:
I think high household and government debt levels in many large developed economies will restrain global growth for some years to come and New Zealand households are being a lot more cautious about taking on new debt and spending than they were before the Global Financial Crisis.
Further financial market turmoil and a slow Christchurch rebuild may keep the OCR interest rates lower and for longer than economists think. That means I think floating is cheaper than fixing for now, mainly only because I have a more bearish view on global growth than the RBNZ and economists.
We have a calculator which works out whether fixed is cheaper than floating, given the assumption that the RBNZ's forecast track for the 90 day bill rate is correct and given the current average mortgage rates. See the current mortgage rates offered by banks here.
I also think house prices will grow less than inflation and may fall further in some areas. I stick to my longer term view that house prices are still over-valued and will eventually fall to around 15% below their 2007 peaks.
They are currently around 3% below that peak and are down more than 11% in inflation-adjusted terms since that peak, which is the biggest fall in real house prices since the stagflation of the 1970s.
See David Chaston's article here.
(Updated January 24 ahead of January 26 OCR decision)
52 Comments
"I also think house prices will grow less than inflation and may fall further in some areas. I stick to my longer term view that house prices are still over-valued and will eventually fall to around 15% below their 2007 peaks.
They are currently around 5% below that peak and are down more than 11% in inflation-adjusted terms since that peak,"
Yep thats what the fundimentals I used said back in 2006 and that is what is still happening, except I still stick to about 30% overvalued at 2007 peak....inflation adjusted and on a house by house comparison, not over aves which do not indicate changes in the market of types of house and easons for selling and purchase....On that basis its not around "11%" but rather 15 to 18% and higer for coastal /lifestyle types.
What ever we are still in for a stable flat market for some time to come...untill the ave long term (30/40+yrs) stats expolated out, meet with the current prices
As to fix or not, nothing has changed since last month...when things start to move hook into a fixed term as long as possible under the long term interest rat ave of around 8.3%
Cheers
Steps
"I stick to my longer term view that house prices are still over-valued and will eventually fall to around 15% below their 2007 peaks. They are currently around 5% below that peak"
I've pulled you up on this before, Bernard! Your 15% prediction was for the REINZ median to fall 15% to $299k (originally 30% to $246k), not for the stratified index which didn't exist at the time to fall 15%.
The current median of $355k is actually up on the 2007 peak of $352k, but down from a peak of $365k in March this year - though it's basically been sideways which is what I predicted in early 2008.
Personally, I think the pressure from higher material costs, higher labour costs, population growth and low building rates is starting to be felt, particularly in Auckland where these things usually begin. I think a median of $399k within a few years is quite likely...
We won't see cheaper house prices unless we build smaller houses, cheaper houses, and more houses coupled with low population growth. The only one of those we've achieved recently is low population growth but even that's unlikely to last...
You miss one huge fundimental...Ppl can only pay for a house based on what they can earn.....currently to due the x 5 or 6 value to earnings ratio both have to work....then throw in virtually no wage increases and higher un-employment andhouse prices rising just does not add up....ditto rents....
Medium and long term throw in BBs retiring and down sizing.
Medium Term peak oil will stop economic growth.
Medium term debt is still way over the top.
Medium term we will have a higher un-employment....10% seems likely.
Short term the GFC is about to be GFC2.
So, no prices are at best going to decline slowly over the next 20 years as we do a japan...4 or 5% per annum..
If like me you see a Great Depression then we will see a 10% drop per year for 3~6 years.....house prices could easily be worth 50%+ less to what they were in 2007.....personally I dont think they will ever exceed 2007's values in real terms.....ever.....but thats OK for most ppl....ie ones with low or no housing debt.....the ones who will get screwed are the first time buyers with huge % of debt to equity who bought over the last 8 years and over the next few....they will be wiped out.....and they are probably the ones who are expected to bear much of the tax burden....
Going on like we have been just does not add up....
regards
I heard that the number of people employed in the public sector ...that earn $100,000 or more has grown by 10% , over the last yr.
I heard this on the radio.... so I'm very unsure whether I got it right ...or that the information is correct...?????
There is money out there... just not in the hands of the working/middle class...
Central Banks all over the world have sacrificed Savers in order to prop up things as they are.....
If real estate should drop tooo dramatically over here and Austrailia.... I reckon the Central banks would drop the OCR to 0 or .25%.....
Yep, you heard right;
The report also includes the number of employees receiving $100,000 or more, a figure that has increased 10 percent this year, compared with 4 percent last year, driven in part by the number of agencies undergoing restructuring and a consequential increase in payments on termination.
http://www.voxy.co.nz/national/report-details-senior-state-staff-wages/5/101508
And I love this one - here's a list of some of the CEOs to getting another $20-30,000 grand each;
The salaries are measured in $10,000 bands and Rennie went from a minimum $450,000 to at least $480,000. ACC boss Jan White, Clerk of the House of Representatives Mary Harris, Chief of Defence Force Rhys Jones, Transport Accident Investigation Commission head Lois Hutchinson, Department of Prime Minister and Cabinet chief executive Maarten Wevers and Housing New Zealand's Lesley McTurk all received pay rises of between $20,000 and $30,000. ..
But the kicker is Rennie goes on to say;
... the Government expects that remuneration changes across the State sector will be met within existing funding levels, reflect high performance, be responsible, and demonstrate value for money." (bold emphasis mine)
I mean take just NZDF for example... aren't they the ones who hadn't delivered a single equipment upgrade/purchase over the last 5 years due to not having sufficent staff skilled in project management? How did that reflect "high performance"?
And I'm absolutely certain it would be hard for Mr Rennie to find any work achievements/examples from the rest of the lot that most of the general public would consider qualified as high performance.
All these CEOs need to do is make more staff redundant - and that will be considered "high performance". I suspect that's why Defence got the nod - they "civilianised" a bunch of jobs - and now we'll pay contractors more money to do the cooking.
I agree with Murray. The cost of building has risen hugely. Any drop in value of property should be attributed to a decrease in land value not capital value. Any further drop or stagnation on house prices is only setting up for another boom (all be it comparatively mini) as the lack of the much more expensive new houses coming onto the market increases demand on the falsely deflated used house market. New Zealanders want to live in mansions but don't want to pay for them. If people can't afford a Jag then they should buy a mini. That's the fundimentals…
Steven: You raise some interesting points, but you are painting the worst case possible outcome. That's a little unlikely don't you think? One or maybe 2 of those things you outline could come true but not likely all of them.
Let's take your points:
"Medium and long term throw in BBs retiring and down sizing." -
Maybe true but they will have to live somewhere - so if they sell one house they will buy another, so maybe makes larger houses cheaper but puts pressure on smaller houses close to a hospital, so takes a bit away from one but then gives it back to another, net effect is zero.
Medium Term peak oil will stop economic growth.
Oil prices drive inflation so if we get higher oil prices, then higher inflation, this actually supports property prices as the cost of new builds rises putting pressure on existing house prices.
Medium term debt is still way over the top.
Totally agree with you here - this will limit how much debt people can take on, but also means the RBNZ is unlikely to raise rates any time soon.
Medium term we will have a higher un-employment....10% seems likely
I don't know where you get this from, we are not in a recession and unemployment seems stable, plus heaps of people are going to Aus, negative net migration (albeit small) means more jobs for those who stay in NZ.
Conclusion:
Overall we have deleveraging, and a debt overhang, sluggish world growth, but even through all this prices in Auckland have not really fallen. So we might get drops in real terms but not nominal terms. Outside Auckland, different story, rural and coastal NZ is screwed.
Pays not to be too pessimistic, realistically somethings will hold property back, but some others will help it, so on balance, somewhere in the middle.
Harry Dent predicting housing crash in Australia.
http://www.macrobusiness.com.au/2011/09/harry-leaves-a-dent-on-australia/
The "finance experts" respond.
http://www.macrobusiness.com.au/2011/09/experts-circle-wagons-to-repel-dent/
another complete do-up, average size section sold this week just under a mill.
Just doesnt add up - who are these people, week after week - paying these prices?
I agree with Steven as to what will happen.
I also agree with the others that building costs will rise That however will not necssarily flow into higher house prices Steven's points have the real possibility of effecting house prices, cost to rebuiold higher or not. As happens elsewhere demand simply doesnot push up prices if there is noithing to pay for them. (eitehr borrowing or real income)
Personally I think Bernard is being conservative at 15% I think 30% is more realistic, but the time its taking with all the tweeking and borrowing by government is extending the day. I think he under estimated how silly politicians and others can be. I work in the front line (not a real estate agent) but if we lose those civil servnts with their big salaries ( The private sector is hurting now) then numerous numbers of my clients in the industry are finished. And we know whats really funding those big civel servant salaries. Borrowing.
Even my youngest daugher has learnt that thrill and seemingly endlees joys of usiing your credit card for too long has its pay day eventually.
Part of Bernards thrust is to show us that we are simply living of borrowed money and therfore borrowed time and to be prepared for the day we reach or credit limit and the bank asks for repayment. He also points out the potential social consequences, that could go well beyond not being able to go on shopping sprees
IMHO...(I've been keeping a close eye on this as we will be in the process of selling soon) There is two main housing markets in NZ - excluding apartaments and CHCH
1. Auckland (going well) and 2. the rest of the NZ (flat as a pan cake)
And within Auckland there is two distinctive markets; 1.CBD (or near CBD), which is going like hot cake and then 2. the rest of Auckland which seems to stuck in 2nd gear!
I think Murray AND Steven make good points
Murray is right about the upwards push of construction costs limitting falls, Steven is right about the limited ability of households to pay more for housing (in the context of limited wage inflation)
I think prices will be pretty static for a while, although an international crash could push them lower again
There were many on this site who imagined the collapse of housing prices in NZ, to follow USA etc. They've been waiting for this for 3years. Not too sure when they will wake up NZ is a great place to be and we are actually doing pretty good- the old adage is still true, when the cockies are coining it, that's good for NZ, even better when they start opening up their cheque books again (to offset tax bills) in 2012. Cameron Bagrie, ANZ is usually pretty good at summing things up and this is what he has been sayng for the past year. I realise there are those who are philosophically or pschologically opposed to this but who cares?
"Further financial market turmoil ... may keep the OCR interest rates lower and for longer than economists think".
"... I have a more bearish view on global growth than the RBNZ and economists".
I am sure you also know better than your mechanic how to fix your car, and you know better than the surgeons how to perform surgery, don't you?
Alex
After my car has been into the shop for the 10th time in 3 years with a faulty accelerator and they are still telling me "don't worry I've fixed it this time" . And if these are the same mechanics who did the prepurchase check and said "she a wee ripper, think you should buy it" then I think I might start to go to a few night school classes and work out what the problem is for myself.
You are obviously in the camp that thinks the experts must be right since this is their full time job.
Want to buy my car? She's a wee ripper. Very reliable.
Stephen wrote
<house prices could easily be worth 50%+ less to what they were in 2007.....personally I dont think they will ever exceed 2007's values in real terms.....ever.
and Spirk agreed.
Since I am such a generous fellow I would like to make this offer to you both.
I will purchase your house in 6 years time at a mere 35% below current registered valuation - this will enable you to take the money from the sale and buy a new house in the same market for the 15% profit you will make.
There is a bit of fine print of course, mailny in regards the location i.e. no third world suburbs etc but we can discuss that later after we reach agreement.
We bought a place two years ago for 38% under its still current CV. CVs are due to be reviewed next year. We spent $100K on upgrades and QV visited to review the valuation, as they do whenever there is a building permit involved in the upgrade.
They are reluctant to add the expenditure to the value of the improvements - as of course where the overall value is concerned, we paid so much less than the CV. This doesn't suit us as for insurance purposes the dwelling is way undervalued and I don't want to be sitting there arguing with an insurance company in light of all the shenanigans going on in Chch. QV fully understand this. So, they are thinking about lowering the land value to compensate for the increase in the value of the improvements. Suits us just fine as rates are calculated on land value here. But I can imagine there will be a major upset in the neighbourhood if everyone elses land values decrease by this same percentage in the next revaluation.
Point is - there have been so few sales in so many areas of NZ, that the exceptions like our own are going to set some benchmarks - and I'm glad to see that QV are holding their ground on this. As soon as CVs start coming down in relation to real market clearance values - all the better. It's the only way the Mexican stand off will end.
PS - we're not a third world suburb - decile 10 school area. In fact it's the high end that I imagine (if the expceptions are taken into account) will suffer the largest percentage declines.
I wouldn't be surprised if council QV valuations are inflated anyway whether it be on the land or "improvements". Most likely it's in the land values. Councils calculate rates on either land or capital value.
Been doing a fair bit of comparison of CV's in a couple of areas of interest and there are some fairly confusing variances between similar properties.
With regards to upgrades I sometimes question whether this should affect valuations or not and I guess it depends on specifics. For example if it's spent adding an extra bedroom then most likely it increases the value of "improvements". Whether it equals the full spend amount is probably debateable. If the spend is on carpets, painting, refurbishment then I'd argue that in a lot of cases it just restores the condition of the house and improves saleability without adding to the value of improvements.
I think a lot of people think that if they spend $100k on their property it automatically means and extra $100k to the value of said property. Not saying that's your mentality Kate, just my personal observation.
QV visits every property after such time as a building permit gets it's CoC, which was the case with our upgrade. And they ususally only amend the value based on the building work. So you're quite right - cosmetic changes (i.e. new carpets, kitchen joinery etc,) normally don't change the value - although one can apply (and pay I think $250.00) for what they call an "urgent" review of government valuation for the instances where no building permits were required for the work. These days, as I get the feeling they're working to keep CVs down/realistic, I don't know I'd advise spending the money though - as I think they're unlikely to revalue for paint/paper and carpets these days!
QV do not visit every property after a building consent/CoC. Maybe they are supposed to, but I can assure you from personal experience that this does not always take place.
Regarding valuing your property for insurance purposes, if you take out full replacement insurance, rating valuations are completely irrelevant. Even for an indemnity type policy (I don't thiink you're that stupid!) a formal valuation by a registered valuer would carry a lot more weight. It may pay to photographically record your improvements, keep receipts etc, (off site) in case of, say,a fire. If you are being prudent because of what happened in Chch, take the advice of a RedZoner, take out full replacement cover. For a few dollars extra per week, we effectively are being paid out over $200k more. Prudence can sometimes be a very good investment.
P.S. I can give you the names of insurance companies to avoid, if you are shopping around..
Hi CT, thanks for the advice. We have a full replacement value policy - yet I was under the impression the situation in CHCH was that if you were RedZoned and you take the government offer - then you only get RV, regardless of what you were insured for? I realise one doesn't have to take the government offer but assumed that in not taking it the claims process is more lengthy/complicated?
Turns out in our case QV increased our RV by the value nominated in the building permit to our valuation - and didn't take any amount off the land - which was in our opinion the common sense thing to do all along.
Yes if you sell your property to Crown under option 1, you get RV and the Crown takes over your insurance claims (except contents). Not a good option, and it makes no difference whether your insurance is for full replacement or indemnity only. This would occur if your insurer deems your property repairable for less than the cost of rebuilding it. A work colleague is in this situation, and had spent large amount of money improving his property, not reflected in 2007 RV. You obviously don't want to end up in a similar situation and I see your point, who knows, this unusual situation may recur, somewhere, sometime.
I've advised my colleague to get independent costings of reinstatement, and a good lawyer, to challenge the insurer's assessment. The stakes are quite big.
Re turning down the govt. offer - the risk is, your insurer will do nothing, except offering an indemnity-type payout of the "present value" of your damage - doesn't sound good does it? The CCC will eventually cut off your services, and the Govt will get your land one way or the other. So its no wonder that people are taking what they can get, and moving on with their lives. I don't blame them, but I don't imagine they are overjoyed with the outcome.
Yes, that's as I understood it. To me the govts decision to use RV as a market valuation was just plain unfair/wrong. Especially given the folks at QV stress the fact that the RVs are NOT market valuations - and they have even less to do with rebuild/replacement costs.
I think I recall JK legitimating the use of RV as being "pretty close" (to a market valuation) but in my opinion pretty close isn't good enough - each house should have been assessed on a separate basis.
Gavin
2 points.
Inflation and financial repression
My home isnt valued in terms of dollars. Its valued in terms of low cost to upkeep long term, (affordable shelter etc) it has land so food production, animals chickens fruit nuts and veges. My own water, solar hot water, more than one dwelling for an income stream or my chidren to use if the shit hits the wall for any one of them them. Plus other non monetary factors
If debt is inflated away, with financial repression,(looking increasingly that way) then your offer is not very attractive at all, as the nominal dollar v the inflation dollar could be a 50% drop in real terms over 6 years
improvements blah de blah blah.... your council revaluation of your property excludes chattles so don't matter 2 cents if the carpets are an extra million dollars - it doesn't count....
rule number one - consult the rule book for the rules....
President of Property...
Bernard, currently the 2 year rate at the likes of ANZ is almost the same as the floating rate. I can only think of 2 reasons not to fix for 2 years:
a) You think floating rates are going to go down in the next 2 years
b) If you fix for 2 years now, you may come off the fixed rate at just the wrong time
Conversely, the risks you take if you stay floating are:
1) EU collapses, cheap credit dries up, floating rates go up (and possibly quite a bit)
2) NZ economy picks up and Bollard raises interest rates (but probably not by much)
but John Key says everything is going to be all right... You're just trying to scare us. But we believe ol' Smile and Wave... Our economy is the strongest in the world... All we need is the world's second strongest economy, China, to stay strong, which of course it will!
Public sector employees pay.
See todays ODT. Museum director on $310793,in Dunedin,which is stoey broke. Madness!
http://www.odt.co.nz/news/dunedin/195375/chiefs-300000-salary-package-reflects-museums-successhttp://www.odt.co.nz/news/dunedin/195375/chiefs-300000-salary-package-reflects-museums-successhttp://www.odt.co.nz/news/dunedin/195375/chiefs-300000-salary-package-reflects-museums-success
A study by the International Monetary Fund is urging Australian banks adopt tougher capital requirements in case of a collapse in the country’s property market.
“Combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks’ capital. Therefore, it would be useful to consider the merits of higher capital requirements for systemically important domestic banks,” said the IMF paper made public today.
The report comes as concerns about Europe’s debt crisis hit the funding prospects of Australian lenders, with a recent heavy premium in a covered bond offering from Commonwealth Bank of Australia highlighting a blowout in bank funding spreads.
Banks continue to face concerns from global investors about the prospect for Australia’s mortgage market after a broad decline in home prices last year.
According to the IMF paper, the banks’ main vulnerability is their exposure to a highly indebted households through residential mortgage lending. Together, Australia’s four largest banks hold more than 80 per cent of Australia’s mortgages on their books.
New loan rates to hand ....
Type Today 1 Mo 30-Year Fixed 3.96% 3.97% 15-Year Fixed 3.28% 3.29% 5/1-Year ARM 2.91% 2.87% 3/1 Year ARM 2.85% 2.76% 1-Year ARM 2.71% 2.96% 30 Year Jumbo 4.51% 4.67% 15-Year Fixed Jumbo 3.80% 3.96% 5/1-Year ARM Jumbo 3.14% 3.18%Oh, whoops - that's the USA ....
Wouldn't mind fixing for 15 years at 3.28% .... might have some disposable income left every fortnight.
Now if every mortgage-holder approached their bank tomorrow and asked for a rate cut. Or maybe NZ-ers are now brain-washed to expect high (relatively) rates?
My prediction. House prices stagnant in the current economy. If it gets tougher the banks will act to keep the money rolling in. How far they can go to keep money spinning will be the true test. A fall out in unemployment, international credit and NZ's high FX curbing immigration will pop of the bubble.
Talking about interest rates.....something to chew over today!!!!!
"the Fed and the U.S. Treasury desperately want to beat down the value of the dollar. The greatest obstacle frustrating their effort is the stubbornly high and still increasing value of U.S. Treasurys. Captains of the world’s monetary system are yanking levers and twisting throttles which are no longer connected to anything. The captains are no longer in control. Yet they continue to wave their batons feverishly and pretend that the orchestra is paying attention. They want Jim Willie, Jeff Nielsen and everyone else to believe that the falling interest-rate structure is the outcome of their deliberate monetary policy. In fact, the Fed and the U.S. Treasury are trying to stop the rate of interest from falling further. They instinctively realize the threat of falling interest rates brings deflation and depression in its train. The dollar is much too strong, contrary to the wishes of policy-makers".
http://globaleconomicanalysis.blogspot.com/2012/01/premature-dollar-obituaries-and.html
http://www.crockers.co.nz/media/54543/auckland%20rental%20table%20-%20december%202011.pdf
Clearly returns are increasing fast.
Giving both renters and investors a nudge to get into the market.
Why not when money is virtually free?
yes somewhat of a major typo!!!!
Really, the figures don't show big gains at all. Of course great variance from suburb to suburb, but the rental figures tend to be a bit all over the place. Certainly anecdotally rents in central Auckland suburbs are up 7-8% on average
Time will tell if Olly's prediction of median rents doubling within a couple of years come to fruition - somehow I doubt it very much!!!!
And for all those fretting about Australia - they are quite stable.
Yeah SK I think Aus house prices will track along pretty much sideways next couple of years, thanks to likely significant OCR cuts which will hold things up ala NZ.
Prices are unlikely to go up much at all though because I think unemployment is going to rise quite significantly, and outside mining the economy is slow
Yep. Adelaide is an interesting market. There are plenty of areas that are very expensive ala central Auckland suburbs, with plenty of villas going for $1 million plus. then you get the somewhat cheap and nasty new subdivisions on the outskirts where you can buy a new house for circa $320K, but you are living in a pretty bland and soul-less environment.
Then in between you have your middle of the road suburbs, looking at 400K-500K for average houses
I'd like to buy a small section in a reasonably good area and build a small townhouse. I'll look to wait a year or two, to build a greater deposit, let interest rates fall further, and also make sure the small possibility of economic chaos blows through this year. The construction costs are much more competitive here than Auckland
it doesnt get you much in Melbourne. I rent a humble place for 550 per week, 10ks from town, probably valued at around 1.2 m (or a little less to take account of recent falls). So a gross yield of about 2%, net around 1.5%. I have run the sums, and I am about 70k better off per year by renting on a own v rent cost basis. Its all the evidence I need that there is a bubble, and I would not be expecting a 7% gain per year to make up for the loss. So no incentive for me to buy, although it worries me the amount of taxes I have to pay on interest earned on cash (46% for pete's sake), it really drains an otherwise respectable 6% return a year. Property is tax efficent, cash is not - horrendous govt policy (worse than NZ) has ensured Aus has obscenely overpriced property. I dont think the farce can be maintained for much longer, but you can be damn sure the govt will try to keep it going by taking money off savers.
yup - thats part of my calculation. Its around 60k or something. Calc is as follows:
assume 260k deposit, house = 1.26 mill (inc stamp duy) = 1 mill mortgage.
mortgage = 75,000 pa int only, rates / maint / insurance = 15,000 pa, transaction costs = 3000 pa (assume own house for 10 years and sell, txn costs = 30,000). So total cost = 93,000.
Rent = 26,000 MINUS int earned on deposit (4% after tax is 12,400) = 14000. Oh wow, the difference is actually 80k. Will drop a bit with rate cuts, but still well over 70 k difference. Laughable really. For me that money goes straight in the bank.
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