To the Valu in Review for August - a little bit later than normal. The economic data for the month is indicating that after the last 4 increases in the Official Cash Rate, combined with other influences, it appears that the housing market is starting to slow down. The next review of the Official Cash rate is due on 13 September. Research indicates that rents across the country are increasing, on average. There is also a warning about your obligations when entering into a contract to purchase property where the offer is conditional. As always we hope you

Read, learn, enjoy ....

.... and happy investing!
 

In recent weeks there have been 2 major items in relation to economic matters. The first is based in the United States where a number of lending institutions for mortgages at the "riskier" end of the market have run into financial difficulty. The knock on effect for NZ is that a lot of the funds that NZ banks borrow, and then lend out for mortgages to the consumer, comes from the US. This money is now harder and more expensive (higher interest rates) to obtain. This has lead to at least two economic commentators to predict that the slowing in the housing market could now be faster and a drop of up to 10% in house prices (previously predicting about 5%) - particularly if there is more bad news for the NZ economy.

The second is the collapse of a number of finance companies in NZ. This has led to a lot of investors removing their money from the finance companies and placing it on deposit with the NZ banks. The general consensus by commentators is that finance companies failures do not represent a significant risk to the financial sector or the NZ economy. The deposits at the finance companies affected are estimated at $1.5b, the expected final financial loss to investors is $0.5b. It was noted that the New Zealand Stock Exchange can loose this value in one day easily.

Given the current economic conditions who in the market is suffering? Economists predict: those who have just bought and/or first time home buyers (are likely to have not much equity in their property and significant amount of debt) and investors (with recent increases in interest rates the costs of property have increased substantially - meaning lower returns).

The Reserve Bank of New Zealand has increased the Official Cash Rate 4 times this year in an attempt to stop the increase in inflation. It is now at 8.25%. The next review is due 13 September 2007.
 

Early in August a judgement in a Court of Appeal case was released. Party A had their property for sale. Party B put in a conditional offer for purchase (it being conditional on Party B selling their own property within 90 days). Party B did not sell their house in the required time period so Party A accepted a second offer that was substantially lower than the offer from Party B. Party A then sued the original purchasers (Party B) on the basis that Party B did not do all of the things expected of them to sell their property.

Party B had a local service business and were concerned that if word got to their clients that they were selling their property they would loose business. They instructed a couple of Real Estate Agents but advised that they were not to put For Sale signs outside the property, advertise it, places it in the agencies front windows etc.

Party A sued for shortfall on the Sale and Purchase Agreement of $90,000 plus interest on the basis that Party B had not fulfilled their contractual obligations fully - by not listing the property for sale with agents and advertising and marketing the property in the normal way.

The Court found in favour of Party A and has awarded them around $300,000 plus costs. It could cost Party B approximately $400,000.
 

The Centre for Housing Research issued the results of research into home ownership. It predicts a further decline in the rate of home ownership. The analysis is based on data obtained from the 2006 census and is a prediction of the ownership rates in 10 years time (2016).

Period Ownership
1996 - 2001 67.8%
2001 - 2006 66.9%
2006 - 2016 62%

The study found the lowest rate of home ownership would be in Gisborne (57%) and Auckland 58.3%. The highest rate will be in Marlborough (70%).
 

Research released by a rental manager in Auckland and based on data from the Real Estate Institute and Tenancy Services indicates that rents are increasing across the country.

National Average Weekly Rent

	July 2006	July 2007
2 & 3 Bedroom houses	$395	$420
2 bedroom properties	$304	$318

The biggest increase in rents has been for properties with lower end rents in the provinces where rents for 2 bedroom properties have increased 17% and for 3 bedroom properties the increases in the past year has been 19%. This compares to Auckland where the increases have been 8% and 5% respectively.

 

The indicators for the figures for July indicate that the house market may be slowing down.

The figures released from QV indicate that the main urban centres seem to be slowing down while some of the provincial towns have good increases in values. The general trend seems to be that the number of buyers and the number of property's available for sale are decreasing. However this could be indicative of the winter months traditionally being slower.

The other main set on housing figures released monthly, from the Real Estate Institute of New Zealand, indicated a drop in the national median sale price from $347,500 (for June) to $345,000 (for July 2007). Sales volume were the lowest since 2001 (6,660 properties compared to 7,761 in July 2006). The reason indicated for this fall by the REINZ was the slower months of winter. Overall for the 12 regions across the country, in July, 5 regions had rises, one was unchanged and 6 had a price drop.

Both QV and REINZ commented that if the spring sales figures do not increase they predict the annual growth in property values to be back into single figures.