to the Valu in Review for January 2008 - a little later than normal due to the holiday break. This is a summary of news articles in the press over the Christmas/ New Year break and for the month of January.

Figures released over the last 5 weeks or so indicate a continuing pressure on the economy as it continues to operate at full speed. Many statistics on the economy are indicating it will make it hard for the Reserve Bank to control inflation (with the knock on effect to the Official Cash Rate and mortgage rates). There is also an indication that the property market is (finally) cooling. However commentators can not really agree to how much the property market will cool.

Add to the persistent inflationary effect in New Zealand the cooling housing market, the effect of the credit crunch in the United States, the deteriorating outlooks for some European economies, the price of oil - it all adds up to this year shaping up to be an interesting one for property.

As always please read, learn, enjoy ...

... and happy investing!
 

Official Cash Rate. This was increased four times in 2007 by the Reserve Bank. The first Review for 2008 was on 24 January. The rate was held at 8.25%. The last move in the OCR was July 2007.

Inflation. For the year ended 31 December 2007 was at 3.2%. For the quarter ended December the increase was 1.2%. This is the second largest increase in the last 7 years. The figures were high but not completely unexpected by economists. In December 2007 the Reserve Bank predicted that the annual inflation rate would be above their target of 1.0% - 3.0% in the medium term for all of 2008 and would actually average 3.4% for the second half of 2008 (with an average rate of 2.8% over the next three years).

Building Approvals. Figures are provided by Statistics New Zealand. November 2007. The figure for new houses and apartments figures decreased by 0.1% from October (in October the figure had decreased by 4.6%). However when apartments are removed, approvals for houses actually increased by 1.8% in December. There were 1,738 new dwellings authorised. On an annual basis (ended 31 December) councils authorised the construction of 25,544 houses. This number is the lowest number of new dwelling authorised since 2002 (the peak was in 2004 with 31,423 new dwellings). Other annual trends are larger dwelling floor areas and an increase in the value of the work (2004 was $4.3 billion, 2007 was $6.4 billion).

Employment levels. The unemployment rate for the quarter ended 31 December was 3.5% - the lowest it has been since the Household Labour Force Survey, conducted by Statistics New Zealand, started in 1986. The survey also found the largest number of employed people working in NZ.

Migration. The net increase for the year ended 31 December 2007 was 5,494 (2006 was 14,630). The 10 year average is 9,752.
 

The "numbers" on the housing market indicate it is adjusting faster than many economists predicted.

Figures from REINZ (For the month of December 2007)

	Dec 06	Nov 07	Dec 07
National Median Sale Price	$330,000	$352,000	$345,000
Number of Sales	8,245	7,837	5,597
Median Days to Sell	29	36	36

Nationally the median sale price was up 4.5% for the year ended 2007. This compares to 11.9% for the same period in 2006. The national median house price in 2000 was $170,000.

Factors affecting house prices have been quoted as higher finance rates, the holiday period and lower immigration. The number of sales for December is the lowest since 2000.
 

A survey conducted by Genworth Financial into mortgage trends has found that 77% of people expected to easily meet their obligations under their mortgages. This includes approximately one third of all residential mortgages that are due to expire in 2008. Many of these people will experience a 3% increase in their mortgage rate when renewing. Of the people surveyed 78% have a fixed rate mortgage.
 

An international study compared prices in 227 cities in 6 countries (NZ, Australia, US, Britain, Ireland and Canada). The basis of the comparison was median house prices divided by median household incomes. The least affordable city was Los Angeles. For the survey New Zealand was divided into 7 regions. In the Survey the New Zealand cities rated as follows:

City	Ranking (least affordable = 1)
Tauranga	20
Auckland	31
Christchurch	34
Hamilton	40
Wellington	46
Napier/ Hastings	62
Dunedin	78

 

Two of the four largest construction companies in New Zealand have expressed concerns about the number of projects that have been planned in New Zealand that may not actually proceed. Many of the projects have been on the drawing board for years. This has arisen from a credit crunch in the United States, the collapse of finance companies recently in New Zealand and high council fees.
 

The new Housing Minister is pursuing plans to build 3,000 new homes on land currently owned by Housing New Zealand. This is in the suburbs of Glen Innes, Pt England and Panmure. The objective is over the next 20 years to have a "safe, stable and harmonious community". There will be a mix of state houses, "affordable" houses as well as some upmarket housing. The objective is to reduce the density of state houses in the area from the current level of 55% to fewer than 30%.