4 June 2009

Source: stuff.co.nz

Households could collectively save 2 per cent of their annual disposable income next year when they refix their mortgages at lower rates.

The New Zealand Institute of Economic Research predicts that 35 per cent of all mortgages by value will be refinanced over the next year, cutting the total interest bill by around $2 billion.

Not everyone would benefit, the institute cautions, as only a third of households have a mortgage. “There will be some people who will be receiving a significant windfall gain,” said NZIER chief economist Shamubeel Eaqub.

That “considerable boost” to people’s pockets would be needed. The NZIER believes income will be reduced on average by about $10,500 per person in the next five years.

Positives for the housing market were rising net migration and the low interest rates. With evidence that house sales were gaining traction, the institute said the preconditions were in place for a property market recovery but the biggest risk was job insecurity.

“We’re now starting to see some signs that things are bottoming out,” said Mr Eaqub. “There’s a lot of stimulus in the pipeline but we need to keep in mind that the labour market is weak and that there may still be unwillingness to borrow, and to lend.”

House-building was expected to remain in the doldrums for a while. The sector was set to contract by 35 per cent in the March 2010 year, compounding a near 27 per cent fall in the year to March this year.

Annual residential consents have virtually halved from around 26,000 mid-last year but are projected to almost recover by 2013. They are expected to hit about 17,000 this year, due in part to increasing net migration and encouraging interest rates.

Twenty-seven of the Philippine-based Global Property Guide’s 32 surveyed countries recorded price falls in real terms.

Twelve countries recorded declines of more than 10 per cent, with Latvia plunging the most at 50 per cent. Dubai was next at 35 per cent and Singapore and Ireland at 22.7 per cent and 20.4 per cent respectively.

New Zealand’s property prices slid 6.33 per cent, compared to a fall of 1.22 per cent for the year to March 2008. Australian house prices fell nearly 9 per cent.

Only five countries experienced house price rises, with Switzerland topping the chart at 4.3 per cent and 3.5 per cent in Thailand.

The guide said there was no clear sign of recovery in the market which started it all, the US. An inflation adjusted housing index there dropped 19 per cent.

30 April 2009

Source: Stuff.co.nz

The Reserve Bank has dropped official interest rates to a new low of 2.5 percent and is promising low rates at least till the end of next year.

The decision, just announced by RBNZ Governor Alan Bollard, was as expected by a majority of economists.

The move continues a massive series of cuts since July when the Official Cash Rate stood at 8.25 percent, taking the OCR to its lowest level since it was created in 1999.

The news gave the Kiwi dollar a bit of a jolt. It dropped about three-quarters of a cent against the American currency and was just under US56.5c a short time ago.

“We consider it appropriate to provide further policy stimulus to the economy,” Bollard said.

“We expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters.”

The latter comment goes against Bollard’s own words just last month when he said he saw interest rates bottoming at 2.5 percent. The market has been looking for a definitive assertion from the RBNZ that rates would stay low for a long time - and got it today.

The words from the governor have already prompted one bank - Westpac to move on its rates.

Westpac New Zealand has confirmed a 0.4 percent cut to its 6-month fixed housing lending rate. This brings its 6-month home loan rate to 5.39 percent. The rate will be effective from Friday.

Westpac General Manager of Product Management, David Cunningham said: “An important implication of the OCR announcement is the signal from the Reserve Bank that it intends for interest rates to remain low for an extended period. This will provide considerable cash flow benefit to New Zealand home owners with mortgages.”

Bollard has been cutting rates in response to the fact that New Zealand’s economy has been in recession since the start of 2008. Economists suggest there may now be very early signs that a recovery is on the horizon.

The latest National Bank business outlook survey released yesterday recorded the biggest improvement in sentiment among Kiwi companies since the December 2000 survey. “A turning point appears to have been reached for the economy,” National Bank chief economist Cameron Bagrie said.

The extent to which the latest reduction in official rates will be passed on to homeowners through lower mortgage rates is a key question, however.

Bollard has not been slow to prod the banks into action and he was at it again today - gently.

“We expect the large decline in the OCR over the past year to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing,” Bollard said.

Banks have been indicating increasing difficulty in passing on official rate reductions because the cost of money they are sourcing from overseas remains relatively high.

BNZ chief economist Tony Alexander told BusinessDay prior to today’s decision that even if the OCR eventually hits 2 percent - as he is predicting - it is unlikely either the retail banks’ fixed or floating home loan rates will come down much further.

Alexander says that is because the local banks borrow 40 percent of their funding from overseas and the turmoil in international credit markets is forcing them to pay more to secure that funding than in the past.

“You should not expect to see the floating rates coming down much more…I would not expect a 100 percent feed-through [of OCR cuts],” Alexander said.

The run-up to today’s rates review made the decision arguably the most fascinating - and hard to predict - since the bank started reducing rates last year.

While Bollard had chopped another 50 basis points off the official rates at the last review in March, he also talked the about the rates being on a “glidepath” to 2.5 percent. At the time most of the economists had been predicting a bottom of the cycle rate of 2 percent or even lower.

Bollard’s comments were taken by some in the market to mean that interest rates may actually be going UP again quite soon.

As a result of this, the wholesale interest rates charged between the banks started rising and the Kiwi dollar began to surge. Thousands of New Zealanders clamoured to fix long-term mortgage rates, fearing that they had missed the “cheap” rates. This itself, put more upward pressure on the rates.

Bollard was moved to the most unusual step of putting out a media release early this month saying that the rise in long-term wholesale interest rates was “out of line” with the RBNZ’s expectations.

8 April 2009

Source: NZPA

Rising demand in the housing market, on the back of low interest rates and bargain-hunting, pushed mortgage applications to a 16-month high last month, according to credit reporting company Veda Advantage.

March mortgage applications rose 38 percent on a year earlier to the highest monthly total since November 2007.

Interest was led by baby boomers, aged 44 to 62, with a 45 percent rise in mortgage applications, followed by Generation X (28-43 years old).

Against the previous month, applications rose 37 percent in February from January, and 29 percent in March from February.

“Today we are experiencing a level of activity in mortgage applications that we have not seen since house prices began falling in late 2007,” said Veda Advantage managing director John Roberts.

“This activity reflects the lower interest rates stimulating demand, and shows the market going to fixed terms to lock in these rates.”

Applications had only risen marginally for Generation Y purchasers, those younger than 28 years old, probably as a result of tighter rules over minimum deposits.

Applications to any lenders go to Veda Advantage. The company did not release the total number because it was commercially sensitive.

The figures reflected data from the real estate industry which also showed a rebound in the housing market.

The median house price rose between January and March following a downward trend in the second half of last year, to match the pre-recession peak of $399,000 from October 2007.

 12 March 2009

Source: NZ Herald

10:30AM Thursday Mar 12, 2009

New Zealand’s official interest rate has been cut to 3 per cent from 3.5 per cent, and Reserve Bank Governor Alan Bollard has warned that the timing and extent of global recovery remain “highly uncertain”.

Today’s cut of 50 basis points in the official cash rate (OCR) takes the overall reduction to 525 basis points in little more than six months as the global economy deteriorated rapidly.

But Bollard indicated that the days of big cuts to the OCR are now over.

“As economic activity troughs, we expect the rapid easing of monetary policy to slow,” he said today.

“Any future cuts will be much smaller than observed recently. We do not expect to see in New Zealand the near-zero policy rates of some countries. New Zealand needs to retain competitiveness in the international capital markets.

“We will assess the need for further cuts in the OCR against emerging developments in the global and domestic economies and the responses to policy changes already in place,” Bollard said.

While monetary and fiscal policy responses in many countries to the rapid deterioration in the world economy had been substantial, the Reserve Bank expected the adverse economic forces generated by the crisis to be dominant throughout 2009.

In this country export revenues were down, business sentiment was weak, and investment and employment sharply curtailed.

Further house price falls and increased precautionary saving by households were driving a weakness in spending, and inflation pressure was abating rapidly, Bollard said.

Further falls in the lending rates faced by households and businesses were in the pipeline.

“While credit growth is easing in line with the weak economy, we expect financial institutions to continue lending on sound business propositions, to support the recovery.”

The New Zealand economy would be supported by the substantial cuts in interest rates, the large amount of government stimulus, and the sizeable exchange rate depreciation, said Bollard.

The Reserve Bank expected to see activity troughing in the middle of this year and then gradually picking up after that.

“However, the scale of the global financial crisis is such that there is great uncertainty about future economic developments and there is a risk that the recovery may occur later and be more protracted than we anticipate.”

ASB economist Jane Turner said the cut “slightly disappointed the market” and was less than the ASB prediction of a 100 point cut.

The Reserve Bank was now sending a strong signal that it did not want to cut the OCR by much more, said Turner.

“The key was in the last paragraph of the statement, the RBNZ again emphasized future cuts will be significantly smaller and “We do not expect to see in New Zealand the near-zero policy rates of some countries. New Zealand needs to retain competitiveness in the international capital markets,” she said.