Latest News
Buyers in for house bargains
Monday, 20 February 2012 08:27
House hunters could be in line to snap up bargains, with an end tipped to a property market that currently favours sellers.
Realestate.co.nz chief executive Alastair Helm said prospective buyers could soon have more options in the market, with new data showing the protracted housing shortage was at the end of its cycle.
He said that meant the market would turn from favouring sellers to buyers, but he warned while that was good news for those looking to get into homes, the downside was sellers could expect an end to the abnormally high prices now being realised in many areas.
Realestate.co.nz has tracked property sales against new listings for the past five years. The latest data, Helm said, had revealed a notable market cycle for the first time.
Helm said the results showed the supply of new listings followed demand by about six months, and the figures suggested there would be a clear trend to more properties being listed, and a consequent rise in sales this year.
Banks had also loosened up financing requirements for first home buyers, which had increased competition with conventional investors and other buyers, and led to higher prices. The figures showed increased listings would follow shortly.
There were about 30,000 new listings in the past three months – equal to the same period last year – but sales were up 22 per cent. The Real Estate Institute recorded 61,269 property sales last year – a 9 per cent increase on 2010. Helm anticipated a further 10 per cent increase – about 6700 homes – this year.
Based on that analysis, he said 2012 could see 142,000 new listings, up 15 per cent on 2011's all-time-low of 124,000.
"While we won't see anywhere near the levels of new listings and sales we did in the early 2000s, I believe the property market has turned a significant corner."
But that meant owners might have to settle for lower prices, which Helm said would merely reflect a truer market price.
The seasonally adjusted asking price for a property in January was $417,740, up slightly from January last year, and that reflected a progressive easing in the past three months from the peak in October last year of $425,936.
"The shortage of listings is causing price pressures, but increased listings will see sales find a better equilibrium."
Despite the national easing in asking price, only five regions across the country reported a fall in the seasonally adjusted asking price last month. Central Otago/Queenstown Lakes and Nelson both showed double-digit falls. Auckland saw asking prices fall 1 per cent to $540,187. Wellington rose 2.9 per cent to $444,900, and Canterbury 0.6 per cent to $374,123.
But Bank of New Zealand chief economist Tony Alexander said he was wary of anyone claiming to have found a cycle in the real estate market. "There are no cycles left anywhere."
He did not think an increase in the number of sellers would depress prices much, because the driving force was how many came forward, and that remained uncertain.
Realestate.co.nz data tracked sales and listings since 2006, and Helm said it showed correlations between demand and new vendors. He said 2009 was similar, when listings picked up after being flat for five months.
"The prognosis is getting better. It's not a bubble, and it's not an unrealistic level."
Sourced from: www.stuff.co.nz
Rates might go up if Kiwi's borrow more
Tuesday, 14 February 2012 15:01
As controversy erupts in Australia over mortgage rate rises, the prospect of local banks following suit and lifting their rates depends on New Zealanders' appetite to borrow and funding pressures from Europe.
Westpac and ANZ both announced on Friday they were putting up floating mortgage rates across the Tasman, despite no shift in the official cash rate.
In Australia ANZ attributed the move - which has sparked public ire including a rebuke from Finance Minister Wayne Swan - to higher funding costs caused by Europe's fiscal crisis.
New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said there was a risk the same thing could happen here if the appetite for borrowing increased.
"If funding pressures remain then we will eventually feel them but that will be in the context of whether or not us as Kiwis want to borrow more money," he said.
"Interest rates are relatively low ... part of that is maybe [because] we don't have much lending growth.
"Banks have to borrow money to lend on to someone else or they can have it from deposits. Right now they're getting a lot of money from deposits, so they don't have to borrow as much money from offshore so they're not seeing that big increase in funding costs," he said.
Growing competition between banks in New Zealand could also be a factor keeping mortgage rates down, Eaqub said.
If Australian banks were paying more for funding he said, it would be safe to assume their local counterparts were in the same situation when borrowing from offshore.
"Funding for banks is quite unusual at the moment. All this uncertainty ... with Greece and what the endgame is going to be with Europe - that's been the big issue," Eaqub said.
Despite this, Kiwibank, ANZ New Zealand and ASB said they had no immediate plans to put up rates.
Kiwibank communications manager Bruce Thompson said it was difficult to compare the New Zealand banking industry to its counterpart across the Tasman.
Yesterday, Westpac could not comment on any potential rate increase.
"The increasing cost of funds and the instability in Europe provide challenges but, as always, Westpac remains focused on providing competitive options for our customers," a spokesperson said.
Sourced from: www.nzherald.co.nz
Strong Property Sales But Prices Lower
Tuesday, 07 February 2012 15:23
Auckland's biggest real estate agency recorded its strongest January in four years but prices were still down on December.
Barfoot & Thompson's data for last month showed 683 sales, down on December's 714, and prices down from December's $573,071 to $529,768.
But managing director Peter Thompson said the month's activity was extremely positive because it was the best January for sales volumes since 2007 and new listings rose 15.1 per cent.
"We sold double the number of million-dollar homes than we did last January," he said.
But an economist said that overall, Auckland has a shortage of houses for sale.
Philip Borkin of Goldman Sachs said the inventory situation remained tight.
"While seasonally adjusted new listings rose 3 per cent from December to January, the number of available listings continues to fall, touching the lowest level since June 2007.
"At the current pace of sales, we estimate that there is only 5.4 months of supply for sale on the Auckland market, again the lowest since mid-2007.
"At that time, strong demand tightened inventory appreciably. At present we see a shortage of available supply and this could have different dynamics with regard to how the housing market impacts the rest of the economy.
"We believe the low level of new listings reflects a general caution from households overall. If it continues, it should cap the upside for turnover as buyers lack choice, although it will continue to provide a floor under prices," Mr Borkin said.
Barfoot listed 846 houses in December and 1031 last month but these numbers were still well down on months such as last February when 1529 houses were listed for sale with the agency, or November's 1562 new listings.
Mr Thompson also expressed concern about the general lack of listings.
"At the end of January we had 4766 properties listed. While 4 per cent higher than the number at the end of December, it was the lowest number we have had at this time of the year for four years.
"Limited choice has been a feature of the market now for the past seven months. From now until late autumn new listings and sales numbers will build before starting to ease with the approach of winter. Buyers and sellers are taking a measured approach and it will result in the market remaining stable and positive," he said.
Sourced from: http://www.nzherald.co.nz/residential-property/news/article.cfm?c_id=76&objectid=10783665
Latest Fixed Interest Rate Cuts
Friday, 03 February 2012 10:16
Kiwibank has joined with most of the other banks and cut some of its fixed rate home loan rates, with decreases in its longer term loans.
Thursday, February 2nd 2012, 9:33PM
It is dropping its two, three and five year advertised home loan rates by between 10 and 29.
Kiwibank has also ended the "limited time special" four-year rate of 5.99% and increased it 51 basis points to 6.50%.
In the past two weeks there have been reductions in fixed term home loan rates. ANZ and National started things off but they have been followed by ASB, SBS, TSB, The Co-operative Bank and Westpac.
The only bank not to move rates is BNZ.
Kiwibank's new 5.79% two-year rate matches those on offer from ANZ and National and Westpac.
However, it is one basis point higher than TSB Bank's 5.78%, the lowest advertised two-year rate by a bank. The three-year 6.10% rate matches ASB's, which is the lowest rate offered by another bank. The four-year 6.50% trails the Co-operative Bank's 6.45% but matches the next lowest rate from ASB.
At 6.90%, Kiwibank's five-year rate is joint lowest with ASB.
The changes are effective from February 3.
Sourced from: www.goodreturns.co.nz
Prudent to stay put, says Bollard
Friday, 27 January 2012 09:19
The Reserve Bank has signalled that the next move in interest rates is still likely to be up, not down, but will come later than the midyear it foreshadowed last month.
"Given ongoing uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent to keep the OCR on hold at 2.5 per cent," governor Alan Bollard said in the bank's official cash rate review yesterday.
That was a verbatim repeat of what he said in December, apart from dropping the phrase "for now".
The omission was significant, Westpac chief economist Dominick Stephens said.
"It removes the sense of impending hikes that was conveyed by the December monetary policy statement, which projected a gradual rise in the OCR from around June this year."
It was broadly the message the market was expecting - a later start to rate hikes but not a marked change in the bank's stance - and "far less dramatic than the US Federal Reserve's commitment to keep rates at zero until at least late 2014, which pushed the New Zealand dollar a cent higher this morning", Stephens said.
ANZ economist Mark Smith said the Federal Reserve's move effectively gave a green light for a weaker US dollar and by implication a stronger New Zealand dollar.
All else being equal it would allow the Reserve Bank to keep rates low for longer, but it was unhelpful from the standpoint of New Zealand's need to rebalance towards a more export-driven economy.
Bollard noted the recent rise in the kiwi was reducing exporters' returns, though export commodity prices remain high.
The high exchange rate is partly the product of improved sentiment in global financial markets.
While Bollard acknowledged improved liquidity in European financial markets - boosted by a large injection of cheap money by the European central bank last month - he repeated warnings of the likelihood of pressure on New Zealand banks' funding costs over the coming year because of their reliance on offshore wholesale funding.
Smith said ANZ's analysis suggested elevated funding costs would knock about 1 per cent off growth in New Zealand over the year ahead. "We are closely watching deposit rates. If competition escalates and rates start to rise, the case for an OCR cut will strengthen," Smith said.
The Reserve Bank continues to forecast "modest" growth for the domestic economy, with signs of a "limited" recovery in household spending and the housing market, though it said there might be further delays to the rebuilding of Christchurch following the pre-Christmas aftershocks. It said the inflation picture was "reassuring".
The December quarter's inflation data were much weaker than expected at the headline level and the measures of underlying inflation were close to the 2 per cent mid-point of the bank's target band.
Statistics New Zealand's downward revision to the historical track for gross domestic product meant the starting point level of economic activity late last year was significantly lower than previously thought.
And the New Zealand Institute of Economic Research's December quarterly survey of business opinion was downbeat.
Stephens said the boost to demand created by repairs and reconstruction in Canterbury still lay at the heart of the case for higher interest rates, and it was unclear whether the latest swarm of aftershocks would have an impact on the timing.
He said yesterday's statement still left the Reserve Bank much more hawkish over market pricing, which implied no rate hikes until well into next year.
"This difference of opinion is likely to remain until we have some resolution on Europe's debt crisis and clear signs that reconstruction in Canterbury is boosting domestic demand ... A gradual increase in the OCR starting from September still looks like a reasonable prospect."
Sourced from: www.nzherald.co.nz
Official interest rate on hold at 2.5 per cent
Thursday, 26 January 2012 08:28
The Reserve Bank has left interest rates unchanged this morning, with Governor Alan Bollard warning that New Zealand banks will face higher funding costs over the coming year.
Dr Bollard painted a picture of a gradually improving New Zealand economic landscape, with little inflation, but with threats from global uncertainty remaining.
He gave no clear signal as to when the official cash rate (OCR) would be raised, with only subtle hints that the next move was likely to be up.
"Given ongoing uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent to keep the OCR on hold at 2.5 per cent."
The OCR influences borrowing costs, especially the floating rate mortgages which are being used by the majority of households.
Most economists expect the OCR to be left on hold until at least September, and possibly longer, before gradual increases to help contain inflation.
Bollard said that since the Reserve Bank's last statement in December, international markets had improved "slightly", with increased liquidity in European markets. However the global situation remained "fragile", with threats to New Zealand's trading partners.
While he did not say the New Zealand dollar was overvalued, as he has in recent statements, Bollard said the recent rise was cutting income to exporters.
"World prices for New Zealand's export commodities have remained elevated but the recent appreciation of the New Zealand dollar is reducing exporters' returns. The European debt crisis has also increased the cost of international funding, which will likely pressure funding costs over the coming year."
The New Zealand economy was continuing to show signs of growth, although there was a warning that the rebuild of Canterbury, expected to give a major stimulus, could be delayed by continued aftershocks.
"In the domestic economy we continue to see modest growth. Over recent months there have been signs of a limited recovery in household spending and the housing market. Further ahead, repairs and reconstruction in Canterbury will also provide a significant boost for an extended period, though there may be further delays resulting from the aftershocks."
Bollard said inflation pressures had remained "well contained", with it below 2 per cent.
Last week Statistics New Zealand said the consumer price index had fallen to 1.8 per cent in the final three months of 2011.
The Reserve Bank's target band is 1-3 per cent, leading to some calls for the OCR to be reduced.
Economists said while the lower inflation reading gave the Reserve Bank greater flexibility to cut interest rates, this should be kept in reserve in case the global economy worsened and bank funding costs soared.
The New Zealand dollar remained unchanged, at 81.83c, shortly after the announcement.
Sourced from: www.stuff.co.nz
Bollard likely to keep interest rates steady
Monday, 23 January 2012 08:29
Continuing uncertainty about how Europe's debt crisis will be resolved combined with benign inflation locally means Reserve Bank governor Alan Bollard is likely to hold interest rates steady this week.
Monday, January 23rd 2012, 6:25AM
And, as economists continue to push their expectations of when he will next raise rates further into the future, there's even a chance Bollard will change his tightening bias to neutral.
All 13 economists surveyed by Mortgage Rates expect no change on Thursday when Bollard reviews his official cash rate (OCR) which currently stands at a record low of 2.5% where it has remained since March in the wake of Christchurch's devastating earthquake.
Economists are currently evenly divided as to whether the first OCR hike will come in September or December. Craig Ebert at Bank of New Zealand, whose current pick is September, says the risk is it will remain unchanged into next year.
Ebert says while it's possible Bollard will move to neutral, he doesn't expect that will happen.
"He may give some ground in respect of some of the domestic issues," but the European situation now is no worse than when Bollard released his last monetary policy statement (MPS) in December.
Annette Beacher at TD Securities says last week's weaker than expected inflation data - the consumer price index fell 0.3% in the December quarter compared with market and Reserve Bank expectations of a 0.4% increase - will simply provide Bollard with additional comfort about holding rates.
Beacher has pencilled in a 50 basis point OCR rise to 3% for December this year "but risks of slippage into 2013 are high as unstable ground potentially delays the full-scale repairing and rebuilding of Christchurch."
Matt Nolan at Infometrics says there's even a very outside chance Bollard may cut the OCR - certainly the wholesale financial markets are attempting to price in a cut.
The strength of the New Zealand dollar - it is more than two US cents higher than when the MPS was released on December 8 - and the weak recent domestic data, including weak retail sales, could be used to justify a cut, Nolan says.
Sourced from: www.goodreturns.co.nz
Strong December with House Sales up 20%
Wednesday, 18 January 2012 11:49
Wednesday 18 January 2012
Figures from the Real Estate Institute (REINZ) revealed there were 5,316 unconditional sales in December, up 919 sales or 20.1% on December 2010.
The national median house price fell however, down by $12,000 to $335,000 (-3.4%) compared to November but just $3,000 (0.9%) lower than December 2010.
"December was the strongest month for real estate sales in New Zealand, with this being the strongest level of transaction figures in December since 2007, and Auckland having its strongest December since 2006," said REINZ chief executive Helen O'Sullivan.
"Across the country sales volume is up by over 20% compared to December last year with some regions such as Manawatu/Wanganui and Taranaki reporting increases of more than 40%."
All regions, apart from Central Otago Lakes, recorded a decline in sales volumes compared to November. However, on a seasonally adjusted basis the national total was up 5.6% and all but one region recorded an increase in sales volumes.
Auckland recorded its strongest December sales volumes since 2006, with six regions (Waikato/Bay of Plenty, Manawatu/Wanganui, Taranaki, Nelson/Marlborough, Canterbury/Westland and Otago) recording their strongest December sales since 2007.
Only two regions - Hawkes Bay and Wellington - saw lower sales volumes than December 2010.
For December Central Otago Lakes saw the highest lift in prices (7.4%), followed by Taranaki (4.6%) and Wellington (1%). Compared to December 2010, Central Otago Lakes also recorded the highest lift in prices (8.7%), followed by Canterbury/Westland (6.6%) and Auckland (6.5%).
"While the number of transactions is rising, prices have eased back from last month's record highs, with some exceptions in parts of Auckland and the Canterbury/Westland region," said O'Sullivan.
The national median days to sell remained steady at 35 days in December, and is a four day improvement on the 39 days recorded in December 2010. Over the past five years the median days to sell has averaged 41 days across New Zealand.
Sourced from: www.landlords.co.nzFloating rate the sweet spot
Friday, 09 December 2011 11:52
Floating home-loan rates look like the best option for borrowers, with the official cash rate likely to remain on hold until late next year, economists suggest.
While the Reserve Bank left the OCR unchanged yesterday at 2.5 per cent, borrowers coming off high fixed rates will be able to move to floating mortgages at much cheaper rates in coming months.
ANZ Bank estimates that the effective average mortgage interest rate, now about 6.15 per cent, will fall to 5.9 per cent by the end of next year, equal to a reduced interest bill of about $400 million, on $170 billion of debt.
So, while the Reserve Bank is holding the OCR and will keep it low for perhaps another year, there is still a hidden boost coming into the economy.
ANZ chief economist Cameron Bagrie said the Reserve Bank had "kicked for touch any notions that interest rates are going up". Floating rates were the "sweet spot" for borrowers and would remain so for some time.
But, as borrowers came off fixed-term rates, there would be a "passive stimulus" for the economy in the next six to nine months equal to cutting rates by 25 basis points.
The hurdle to the Reserve Bank actually cutting the OCR was high and would need to see a repeat of 2008's global financial crisis.
"While the outlook is grim, I don't think it is that grim," Bagrie said. But he suggested it was also unrealistic to expect the global economy to be stable in the first half of next year.
It was, he said, hard to see a decent performance in the global economy which would be a precursor to interest rates moving up at a solid clip. "We are so far away from that scenario it is ridiculous."
The New Zealand economy was scratchy, with "grumpy growth".
"But in a relative sense, we are a beacon of opportunity [compared with others]."
The Government retained the confidence of investors when parts of Europe did not. Business confidence was holding up, commodity prices had fallen but remained relatively high, and the kiwi had fallen to act as a buffer.
The economy's report card rated a B to B-minus overall, he said.
Australia cut its official cash rate this week, but that was to 4.25 per cent – still much higher than New Zealand's rate.
Bank of New Zealand chief economist Tony Alexander said it would be best to stay on a floating rate, with the Reserve Bank indicating it would not change rates "for quite some time".
The central bank pointed out the risks of a slowdown in Europe, with the prospect of prolonged recession and a possible slowdown in Asia. "I don't see fixed interest rates jumping up much in the near future, so I'd sit floating," he said.
And, unless the eurozone fell over, Alexander expected house prices to rise in New Zealand next year, on average about 5 per cent, led by Auckland, where prices have risen about 6 per cent in the past year.
House-building rates were "exceedingly weak", with an undersupply of homes, so that would push up prices. He also expected a lot of young first-home buyers to move into the market in the next year or so.
When people wanted to build new homes, the country would quickly run out of builders, especially with the rebuild of Christchurch looming.
But Alexander said it was an uncertain global picture, with massive shifts in interest-rate forecasts in the past year. "Much as I'd be happy sitting on a floating rate, a lot of people may find two-year fixed rates about 5.89 per cent attractive," he said.
"That certainty might suit first-home buyers, for the first couple of years of a loan."
- BusinessDay.co.nz
Sourced from: www.stuff.co.nz
Future OCR hikes pushed out
Thursday, 08 December 2011 11:07
Reserve Bank Governor Alan Bollard held the official cash rate at 2.5 per cent, as expected, and pushed out the timing of future rate hikes saying uncertainty in financial markets could force up funding costs for local lenders and is threatening to hinder New Zealand's recovery.
"Given the current unusual degree of uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent for now to keep the OCR on hold," Bollard said in a statement. Elevated debt in Europe is threatening to cause a worldwide economic slowdown, and the "tightness in international markets means funding costs for New Zealand banks will increase to some degree over the coming year," he said.
Read the full Monetary Policy Statement here.
The Reserve Bank reined in its forecast track for the 90-day bank bill, often seen as a proxy for the OCR, and said "monetary policy is projected to remain supportive for some time." The bank now sees the 90-day bank bill gradually rising through the second half of last year before settling at 4 per cent in September 2013.
That trims 30 basis points from the top of the forecast, and removes a sharp increase in the June quarter next year.
Bollard had already pushed out the prospect of rate hikes and trimmed the top of the forecast 90-day bank bill forecast in the September monetary policy statement.
Before the announcement, traders were betting Bollard will raise the OCR just 3 basis points over the coming year, according to the Overnight Index Swap curve.
"The weaker global environment and risk of further negative financial shocks has seen the RBNZ back away from its previous plans to remove its 'emergency setting' policy sooner, rather than later," said Paul Bloxham, Australia New Zealand chief economist at HSBC, in a note before the announcement. "With the labour market a bit weaker than expected and inflation coming in below forecasts, the RBNZ is also likely to flag some domestic grounds to wait a bit longer and assess global risks."
Goldman Sachs NZ economist Philip Borkin said the key message from today was one of "accommodative monetary policy for some time" .
"Importantly, the door has been opened to interest rate cuts if global conditions deteriorate enough," said Borkin.
He said that importantly, Alan Bollard's final paragraph containing "forward-looking guidance had been changed."
It now no longer states that future OCR increases will be required. Instead it gives limited guidance stating that "Given the current unusual degree of uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent for now to keep the OCR on hold at 2.5 per cent". At face value this suggests a shift closer to a neutral stance for the Reserve Bank, although we still believe it is biased towards tightening.
Borkin said that "the door has been opened to cuts in our eyes", with the Reserve Bank stating that "[higher bank funding costs are] likely to put some upward pressure on retail interest rates relative to the Official Cash Rate."
"We believe the outlook for the Reserve Bank is now delicately poised, said Borkin. "While gradually rising underlying inflation pressures see the Reserve Bank remain biased towards interest rate hikes, this needs to be balanced against contractionary fiscal policy and broader financial conditions (which we now deem to be at a neutral level in real terms)."
Bollard said core inflation has eased back, and underlying inflations sit within the bank's target band of between 1 per cent and 3 per cent at about 2 per cent. Wage inflation has remained contained with fewer settlements above 3 per cent compared to 2008, though there's also been a reduction in negative or zero wage changes in the past few years.
Inflation has remained in check through much of this year, with the consumer price index and producer price indices showing slower acceleration than expected. The spike in the CPI from last year's GST hike has worked its way through, and underlying inflation has been stable at about 2.5 per cent in the third quarter, according to government data.
Earlier this year, Bollard indicated he was keen to remove the extra stimulus he added in response to the February earthquake, though that was put on hold as financial markets tumbled after the United States' credit rating was downgraded and the Euro-zone struggled to come to grips with the high level of debt among some of its members.
Markets are waiting for Friday's European Union leaders' summit in Brussels, where it's expected the region's policymakers will agree to a workable plan to integrate their economies and clamp down on government spending in a deal to address members' elevated public debt.
The European turmoil prompted the Treasury to cut its growth forecast for the March 2013 year to 3 per cent from 3.4 per cent, though the government department is still more optimistic on the economy than the New Zealand Institute of Economic Research, which is picking 1.5 per cent growth in calendar year 2012.
The Reserve Bank cut its growth forecasts with Europe's woes weighing on New Zealand's trading partners and as the Christchurch rebuild is delayed. The bank expects growth of 2 per cent in the March 2012 year, down from a forecast 2.8 per cent in the September statement, and 2013 expanding 2.9 per cent, down from 3.1 per cent.
Since the last monetary policy statement in September, New Zealand's sovereign credit rating has been downgraded by Standard & Poor's and Fitch Ratings due to the size of the country's external debt, though Treasury the Reserve Bank are expecting household savings to improve as people use the record low interest rate to repay debt and improve their personal balance sheets.
Those downgrades had "little impact on bank funding conditions" though the Reserve Bank said a further credit rating cut could "elicit a more substantial market reaction."
The National-led administration, which won a second term on Nov. 26, has promised to continue spending cuts as it looks to return the government books to surplus by 2015, and has agreed to implement a fiscal spending cap as part of its governing agreement with the Act Party.
Last week, the government's books showed a bigger than expected operating deficit of $3.36 billion in the four months ended Oct. 31. The shortfall was put down to a smaller than expected income tax take, though corporate tax revenue was running ahead of forecast.
In November, a three-month slide in business confidence was arrested according to the National Bank Business Outlook as companies shook off fears the local economy will get caught up in a global downturn.
Sourced from: www.nzherald.co.nz
OCR remains the same
Thursday, 08 December 2011 08:45
The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.50% and given no indication of future movements.
Thursday, December 8th 2011, 9:06AM
Reserve Bank governor Alan Bollard said part of the reason for not changing the rate is because global conditions have deteriorated.
"Continuing difficulties related to sovereign and bank debt in a growing number of European economies have resulted in high levels of volatility in financial markets. There has also been a softening in international economic activity, including in the Asia-Pacific region.
"Global developments are having some negative impact on New Zealand, though to date it has been limited. Business confidence has declined and investment spending is likely to remain weak for some time. In addition, tightness in international markets means funding costs for New Zealand banks will increase to some degree over the coming year.
"There remains a high degree of uncertainty around the global outlook and, as discussed in the scenario in the Monetary Policy Statement released today, there is a risk that conditions weaken further.
"Domestically, economic activity continues to expand, though at a modest pace. Although off their peaks, export commodity prices remain elevated. In addition, the depreciation of the New Zealand dollar provides some support for the tradable sector of the economy. Over time, repairs and reconstruction in Canterbury will also provide a significant boost to demand for an extended period.
"Annual headline inflation is estimated to have returned within the bank's 1 to 3% target band in the December quarter. Underlying inflation continues to sit close to 2%. In addition, wage and price setting pressures have remained contained.
"Given the current unusual degree of uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent for now to keep the OCR on hold at 2.50%."
Sourced from: www.goodreturns.co.nz
Next OCR increase pushed further into the future
Monday, 05 December 2011 09:14
With the European debt crisis dragging on, economists expect Reserve Bank governor Alan Bollard will leave interest rates unchanged on Thursday.
Sunday, December 4th 2011, 11:09PM
by Jenny Ruth
However, that's no guarantee retail rates, such as mortgage rates, won't rise soon, particularly if European woes worsen.
Financial markets have even priced in a chance of a rate cut - the week before last, the wholesale market had priced in a better than 100% chance of a cut but by Friday had pulled this back to a 35% cut in April or June.
While none agree a cut is likely, economists are continuing to push out further their expectations of when Bollard will start raising his official cash rate (OCR) from its current 2.5% record low.
A couple, including ASB Bank's Christina Leung, don't expect the OCR will rise until December next year but another two of the 12 economists MortgageRates surveyed still expect a rise in March.
Of the remainder, five are picking a June rise and three think it will be September. Ahead of the October OCR review, three economists were still forecasting an OCR rise this week.
"Uncertainty around the European debt crisis and an apparent slowing in the global economy dominate the economic outlook," Leung says.
"These factors have the potential to adversely affect the New Zealand economy, especially if the crisis escalates significantly," she says.
Dominick Stephens, chief economist at Westpac, says he's expecting Bollard to signal the OCR will be on hold for an extended period, "a significant change of stance."
Peter Cavanaugh at Bancorp Treasury Services says the biggest impact of the European crisis on New Zealand is likely to be through increased bank funding costs.
"Borrowing is likely to become more difficult and more costly," he says.
Darren Gibbs at Deutsche Bank says credit growth over the last 12 months has been sluggish at about $2.3 billion but household deposits have grown more than $8 billion, allowing banks to easily fund new credit at present.
The real crunch will come next year when the banks have to start rolling over their offshore-sourced term funding. "They will have to access more expensive funding," Gibbs says.
Sourced from: http://www.goodreturns.co.nz
Interest rates rise may be a year away
Monday, 05 December 2011 08:49
An increasingly dark international outlook is expected to keep the Reserve Bank in wait-and-see mode and the official cash rate on hold at 2.5 per cent when it releases its December statement on Thursday, on the eve of yet another crisis summit in Europe.
The financial markets, as reflected in Credit Suisse's swaps-based indicator, are pricing in no increase in the official cash rate over the next year.
As recently as 10 days ago they had priced in a 25 basis point rate cut over the year ahead, a stark turnaround from the prospect of one or maybe two rate rises which was their view when the central bank last reviewed rates on October 27.
ANZ and ASB see rates on hold for another year, Westpac is now picking September at the earliest and while the BNZ is still formally calling June, its senior economist Craig Ebert says the risks had clearly shifted towards delay.
Consensus forecasts of economic growth among New Zealand's trading partners continue to be revised downward, driven by the flow-on effects of a near-inevitable recession in Europe.
Export commodity prices, while still high by historical standards, have been falling for six months and at an accelerating rate. Last week's terms of trade data suggest that that source of impetus for the economy has run its course for the time being.
But the main channel through which Europe's travails are expected to affect New Zealand is through higher costs for the 25 per cent of banks' funding they derive from overseas wholesale markets. Last week the major central banks moved in concert to boost liquidity in those markets. So if the Reserve Bank projects a lower track for its official cash rate, that can be seen as offsetting expectations of a higher risk premium on top of what banks will have to pay for funding.
"The Reserve Bank in recent years has put more of an emphasis on getting the right level of retail rates, whereas a few years ago it simply wasn't an issue because the funding premiums were very low and very stable," Westpac economist Michael Gordon said.
"Now there is much more focus on what is the level of rates the final customer is facing."
Compared with three or four years ago the banks' holding of liquid assets is higher, and they derive a higher proportion of their funding from retail deposits and long-term wholesale sources. In addition, growth in credit has been very weak - less than 1 per cent over the year to October.
In its financial stability report last month the Reserve Bank said that New Zealand banks have had little difficulty in raising short-term funding recently, with little movement in short-term funding costs.
"The availability of unsecured funding for longer terms is harder to gauge, as issuance is fairly sporadic, and there has been a low volume of foreign debt issuance by New Zealand banks so far this year. Funding needs have been low, with domestic credit demand generally weaker than expected and domestic retail funding having been unexpectedly strong.
"However, it would have been very difficult to place new longer-term unsecured debt issues over the past two or three months as the sovereign debt crisis has played out," it said.
Economists see little in the recent data likely to change the bank's underlying view that its next move in interest rates will be to raise them but that there is no urgency to do so.
"At the margin there has been a little bit less strength in some of the activity indicators," Ebert said.
"Even more important, the inflation indicators we have seen over the past three months have been less threatening.
"Expectations are still something to keep an eye on, but the more immediate price trends, including wages, haven't really picked up. That gives the Reserve Bank some time."
ASB economist Christina Leung said housing market data indicated some slowing in the recovery in house sales.
"Meanwhile, credit growth remains weak, reflecting continued caution amongst households and businesses. We expect the recovery in household spending and business investment over the coming years will be gradual."
By Brian Fallow
Sourced from: http://www.nzherald.co.nz
No cash rate hike until December 2012: economists
Tuesday, 29 November 2011 09:05
ASB's and ANZ's economists have changed their views on when the Reserve Bank of New Zealand (RBNZ will next increase the Official Cash Rate (OCR) to December 2012 from June 2012, arguing the European debt crisis created uncertainty over the economic outlook.
ASB Economist Christina Leung said the European debt crisis felt like it was coming to a head with the growing risk that Italy or Spain could fail to raise money and need to ask for help.
ASB still assumed Europe would be able to contain the crisis, although it noted Germany's vehement and continued resistance to measures that could contain the crisis, including any move by the European Central Bank to expand its role buying Italian and Spanish bonds.
"We have pushed out our view of when we expect the RBNZ to lift the OCR to December 2012, from June 2012. The first half of next year no longer looks soon enough for the RBNZ to have confidence that the risks to the global economy have been sufficiently defused, even assuming Europe contains the crisis very soon," Leung said.
"An ever-increasing proportion of mortgages on floating terms will also give the RBNZ a lot of traction when rates eventually go up.
That, combined with still-muted credit growth, suggests the RBNZ will have the time to wait until it is very confident the global and NZ recoveries are firmly on track," she said.
"We expect the first few 25bp OCR increases to be consecutive, but to be spaced out beyond that on the way to a 4 per cent peak.
In the current environment the OCR outlook is likely to be fluid, as a lot depends on Europe's actions.
It is entirely possible that Europe acts quickly now to reduce the risk of Europe's debt problems triggering a full-blown financial crisis - and that OCR increases occur earlier in the year. And, back in July, the RBNZ was close to lifting the OCR. But there is still the risk the ambulance, currently parked somewhere near the top of the cliff, is itself pushed over the edge."
Leung said New Zealand's direct exposure to Europe was less than 10 per cent of goods exports.
"What will matter more during a period of European weakness is how well Asia's domestic demand holds up during a period of weak European (and US) growth, as NZ's export fortunes are increasingly tied to the Asia Pacific. But interest rates remaining low for longer, combined with weakness in the NZ dollar while uncertainty remains, would give NZ some added insulation," she said.
Sourced from: www.nzherald.co.nz
Bollard warns of economic risks to NZ
Monday, 14 November 2011 10:55
Reserve Bank Governor Alan Bollard has warned risks to New Zealand’s economy and financial system have increased in recent months.
Monday, November 14th 2011, 6:54AM
"Despite progress in reshaping regulatory frameworks, financial systems in many countries remain under stress due to an overhang of private and public debt."
He said markets have been especially concerned about the sovereign debt situation in Greece and the possibility of problems spreading to other European countries, and that this had made access to offshore debt harder for New Zealand banks.
"In New Zealand, households and businesses have been containing debt, which has helped to reduce the country's overall external imbalance. However, these efforts have been offset, in part, by rising levels of public debt."
Deputy Bank Governor Grant Spencer said the banking system was better placed to weather the storm than at the outset of the global financial crisis in 2008, and that the bank has introduced new solvency standards for insurers.
Sourced from: www.goodreturns.co.nz
First-timers drive housing market
Monday, 14 November 2011 10:47
Young professionals who stayed at home with their parents during the recession were now driving competition in the market for first homes.
Chief economist Tony Alexander said the need to spread wings, low interest rates, talk of housing shortages, rising rents and an improving labour market had first-home buyers out in force.
A Bank of New Zealand and Real Estate Institute of New Zealand (REINZ) survey found investor buying had dropped while first-home buyers had dominated sales.
"In contrast to investor activity, first-home buyer activity continues to rise very strongly and is perhaps the most notable feature of our survey in recent months," Alexander said.
He also noted people selling and buying again were much more likely to be downsizing rather than trading up.
The survey - of 10,000 licensed real estate agents - also found that the third-biggest motivation for selling, behind "needing the money" and "leaving town", was the break-down of a relationship.
Latest figures from REINZ showed 58.6 per cent of properties sold in October were in the under-$400,000 price bracket.
Peter Thompson of Barfoot & Thompson agreed the first- home market was busy but said the $1m to $2 million market also showed great growth. The first-home buyer's bracket was competitive but he warned buyers not to over-extend as interest rates would only rise.
Savings with second hand
First home owner Greg Skinner researched for five years before choosing to relocate rather than build on his family's dream site.
The Muriwai man found he could get more for his dollar with a second-hand home than a new build.
"Our house is nearly 200sqm and for the same money we would have only got a 100sqm of new house," Skinner said.
"With this option we got a big place with character and we think it is going to be worth more in a few years than a smaller modern house."
The four bedroom bungalow has plenty of space for his partner and two daughters.
The couple had to have it delivered, re-wired, re-plumbed, insulated, plastered and the interior painted - paying half of what a new build would have cost.
A new home based on between $1500 and $2000 a square metre would cost up to $400,000.
Sourced from: www.nzherald.co.nz
The lure of attractive fixed home loan rates
Monday, 14 November 2011 10:44
Lenders are trying to entice borrowers away from floating rates with attractive fixed home loan rates, but will it work? Jenny Ruth investigates.
A number of banks have been vying to offer the sharpest two-year fixed mortgage rate over the last couple of weeks.
TSB Bank, Westpac, Kiwibank and HSBC have all tossed some very low rates into the market with SBS Bank currently offering the lowest with its 5.65% special - that's exactly the same as its floating rate.
Other banks' two-year rates aren't that far from their two-year rates: TSB's 5.88% two-year rate is only nine basis points above its 5.79% floating rate.
Craig Ebert at Bank of New Zealand says would-be borrowers can thank the Italian crisis for this because wholesale prices have been dropping steadily since July when the wider European crisis began worsening.
The two-year swap rate, which banks use when pricing their two-year fixed mortgage rates, is "the lowest it's been since reasonable records began," Ebert says.
At below 3%, the two-year swap rate is even lower than it was in the depths of the global financial crisis - back in January and February 2009, it was about 3.25%. In July, the rate was about 3.7% and by the end of October it was 3.2%.
"In theory, that should stimulate demand for funds," Ebert says. "But no one's really wanting to borrow at the moment."
The two-year mortgage offerings are flying in the face of the strong trend for borrowers to move to floating rates. Reserve Bank figures show how dramatic this shift has been.
Back in mid-2007, two-year fixed mortgages were the most popular by far. Mortgages with more than one and up to two years to go accounted for nearly 30% of all mortgages. At the end of September this year, they accounted for just 12.2% of all mortgages.
Floating rate mortgages accounted for just 12.4% of all mortgages back in August 2007. By March this year, they accounted for more than half and by September they accounted for 57.6%.
Nick Tuffley at ASB Bank says it's a little too early to tell whether these low two-year rates will halt the trend towards floating rates.
"I suspect the proportion of floating rate mortgages is likely to steadily rise over the next few months but it may slow down a little because of how close those fixed rates are to floating," Tuffley says.
by Jenny Ruth
Sourced from: www.goodreturns.co.nz
