to Valu in Review for July 2006. This is a summary of news articles in the press over the last month or so.

The big news for the month has been the inflation figures released at the start of July. This saw inflation gallop ahead at its highest pace since the early 1990's.

Thanks also to Murray Forster who pointed out some inaccuracies in the figures quoted in the June edition (figures were mis-quoted in a publication). See the bottom of this newsletter for Murray's comments.

Read, learn, enjoy, ...

... and most importantly - happy investing!
 

Inflation. The figures released by Statistics New Zealand for the quarter ended 30 June 2006 showed the inflation rate was running at 4% (as measured by the Consumer Price Index). The biggest sector contributing to the increase was the Transportation Sector - with petrol and international air travel being the biggest contributors to this sector.

This is the fourth consecutive quarter that the CPI has been above the Reserve Banks goal of inflation being between 1 - 3% in the medium term.

At his review of the Official Cash Rate on 27 July, Dr Bollard left the rate unchanged. At the announcement, Dr Bollard was less harsh in his comments on the economy than expected. Dr Bollard also advised that he did not expect to increase the rate further in the current cycle but did reinforce that rate cuts were still some time away. Prior to the announcement, as a result of the increases in inflation and other market signals (for example strong retail sales), the fixed interest market was expecting a 50% probability of an increase in the OCR by the end of the year. Many economists had also been picking a reduction in the OCR by April 2007 or at the latest by June 2007.

The ASB Bank Investor Confidence Survey indicated that, for the first time since the third quarter of 2002, another class of investment has found favour and has equalled investors' confidence in investment property. This is for the quarter ended June 2006. Bank savings has equalled property investment due to an increase in favour for bank savings and a small drop in favour for property investment.

The failure of a number of Finance companies this year may see investors looking for alternatives - one of which may be the property market.

The value of the NZ Dollar has continued to fall against the main trading partners. As a result some market commentators have noted that it is once again looking attractive for Australians to invest in New Zealand assets - and this includes both commercial and residential property.
 

Fixed term interest rates generally seem to be on the increase at the moment. A two year fixed term mortgage will have a rate of 8.2% to 8.4% with one of the main stream lenders. This compares to a two year rate at the same time in 2004 of 7.5% - 7.9%.

The factors contributing to the increase in rates are inflation, which has risen to 4%, and interest rates outside of New Zealand which are increasing (this is where the banks borrow their finds to lend as mortgages).
 

The most recent available figures are for May 2006. The figures released by Statistics New Zealand were the highest ever for the month of May. It should be noted that May 2005 had a "blip" or a dip in figures as it was effected by changes to the Building Act that were taking effect.

The trend has continued for the residential consents with the value flattening off. Consents were issued with a value of $670m.

Over the past 12 months (to April 06) the monthly average for apartments is 13% of residential consents. In May this was 9%. This also follows a trend of the number of consents decreasing for apartments.

For the year ended May 2006 there were 25,698 consents issued to residential dwellings. This compares to 28,762 for the year ended May 2005. The increase in the number of consents has been relatively well spread across the country with 11 of the 16 regions issuing more new residential consents in May 2006 than May 2005.
 

The median house price for June nationally was $310,000 (June 2005 was $284,500). This represents an increase of just under 9%. The volume of sales was up 5% from 8,025 in June 2005 to 8,428 this year. The national average days to sell was 37 (38 in May).

Region	Median Price	Annual Rise in median price	June sales Volume (change from last June)
National Average	$310,000	9.0%	8,428 (+5%)
Northland	$273,500	11.7%	240 (-6%)
Auckland	$405,000	10.5%	2,897 (+4%)
Waikato/ BOP/ Gisborne	$285,000	14.0%	1265 (-5%)
Hawkes Bay	$259 500	9.7%	349 (+26%)
Manawatu/Wanganui	$208,000	25.1%	443 (+12%)
Taranaki	$237,000	12.8%	205 (+12%)
Wellington	$328,000	9.3%	839 (-31%)
Nelson/ Marlborough	$284,000	7.4%	332 (+36%)
Canterbury/ Westland	$271,250	6.4%	1,198 (+9.4%)
Central Otago Lakes	$391,500	-0.9	112 (+2%)
Otago	$226,500	14.8%	315 (+1%)
Southland	$142,500	11.3%	233 (+16%)

 

The Massey University Home Affordability Report for the period ended 30 June has seen 7 regions record an improvement in house affordability. This is measured by resident's average weekly earnings, median house prices and home loan interest rates.

This affordability has arisen due to an increase in wages being more than the eroding factors of the rise in house prices and interest rates. This was driven by homes in the regions that were generally more affordable this quarter, as homes in Auckland, Wellington and Christchurch had become less affordable.
 

Over the year we have been reporting on rate increases by various local bodies. A snap shot of the rates of 42 Local Bodies undertaken by one political party shows that the average rates increase is approximately 7.5%. There is concern at the increases as they are ahead of inflation and the population growth.

Auckland City	13.3%
Masterton	7.9%
Kapiti	5.8%
Hutt Valley	4.0%
Porirua	5.7%
Wellington City	5.0%
Nelson	9.3%
Christchurch	8.3%

 

In the June Valu in Review - REINZ May Figures - it was quoted "This is starting to be seen in the figures from the Real Estate Institute of New Zealand with the volume of house sales down 17% between May 2003 and May 2006."

Also, under "REINZ Figures - May." it was quoted "The volume of sales was 9,642. This was up by about 400 sales from May 2004. May 2005 was the second highest May sales volume in the past 10 years."

1) The difference between May 2003 and May 2006 is actually a decrease of 15%. The 17% figure relates to May 2003 and the following year May 2004.

2) The May 2006 volume of 9,642 is an increase of about 400 over May 2005 and not May 2004. The increase over May 2004 is only about 200 (234 to be exact!)

3) It was actually last May (May 2006) that was the second highest May volume in the last 10 years, not May 2005. May 2005 was the fourth highest.