to the Valu in Review for February 2008. This is a summary of news articles in the press over February. A lot of the articles this month tend to indicate a slowing in the property market. Figures include anecdotal evidence that the number of mortgagee sales has increased, people with loans are missing payments, sales volumes are down and real estate agents are looking to maintain income. Inflationary pressure remains in the economy. Although the Official Cash Rate has not increased, banks' mortgage interest rates remain under pressure to increase from the credit crunch in the USA.

As always please read, learn, enjoy ....

.... and happy investing!
 

The review of the Official Cash Rate ("OCR") on 6 March saw no change to the rate and it remains at 8.25%. The Reserve Bank believes it will be the second half of 2009 before interest rates will fall. The Bank also believes that house prices will fall 5% this year with stagnation in house price for some years as house prices "come in to line with relative income levels".

The Reserve Bank sees inflation being 3.4% for the quarter ended 31 March 2008. This is higher than the Bank was predicting at the end of 2007 (the target for inflation is between 0% - 3% in the medium term). The bank believes there will remain inflationary pressure in the economy throughout 2008.
 

The number of new dwelling consents issued in January was 7.3% lower that in January 2007. 1743 were issued (1880 issued in January 2007). This was the seventh month in a row that the number has declined.
 

Figures released by one major trading bank indicate that there has been a big increase in the number of loan holders failing to make payments on time. This includes both mortgage holders and consumer loans. The bank sees this as an early indicator that things are starting to get financially tougher for consumers and had been expecting it. It is a matter of managing the payment defaults so the loans do not turn into losses.

Mortgage rates may continue to increase, despite no increase in the OCR as the cost of borrowing funds off shore for lending institutions is increasing due to the credit crunch in the USA.

Indications are that the number of mortgagee sales is increasing. The number of mortgagee auctions on TradeMe and the number of mortgagee tenders/ auctions conducted by one large Auckland real estate chain have increased in recent months.
 

The real estate firm The Joneses went into liquidation in February. The Joneses had salaried staff and charged a flat fee to sell a house, irrespective of its value.

As the property market slows down (houses taking longer to sell, less actual houses selling and house prices expected to fall) there are signs more agents are "negotiable" on the commission that they receive for selling (lower commission rates or a flat fee). This view has been challenged by a couple of larger real estate chains/ franchises that believe that the large real estate chains are not reducing fees and they believe people get what they pay for.
 

Figures released by one major trading bank indicate that there has been a big increase in the number of loan holders failing to make payments on time. This includes both mortgage holders and consumer loans. The bank sees this as an early indicator that things are starting to get financially tougher for consumers and had been expecting it. It is a matter of managing the payment defaults so the loans do not turn into losses.

Mortgage rates may continue to increase, despite no increase in the OCR as the cost of borrowing funds off shore for lending institutions is increasing due to the credit crunch in the USA.

Indications are that the number of mortgagee sales is increasing. The number of mortgagee auctions on TradeMe and the number of mortgagee tenders/ auctions conducted by one large Auckland real estate chain have increased in recent months.

Data released by Infometrics noted that the national median weekly rent has been increasing steadily.

September 2007	$280
October 2007	$285
November 2007	$290

The national median rent in November was up 7.4% when compared to the same time last year. Rent increases in conjunction with house prices easing saw gross rental yield increase to 4.39%. This is the highest they have been since February 2007.

It was noted that by some commentators that there is anecdotal evidence that some landlords are getting increases in rent of 15% - 20% when tenants change, and 5% - 10% increases in rent from existing tenants. However there are doubts if the tenants can sustain the increases in rent. Higher levels of rent will strain the household budget of renters. Tenants will look to minimise any increase by increasing the occupancy by room. For example by either moving to a house with fewer bedrooms or bringing in additional people. The achievable increases depend on the area of the dwelling and the type of dwelling.
 

Owners in the largest leaky building complex in New Zealand, the 153 unit Sacramento development in Botany Downs, have settled their claim for $11m just before going to the High Court with their case.
 

Blue Chip and 19 companies associated with it in New Zealand have gone into liquidation. This has left many investors in an uncertain position as the liquidator investigates the financial position of the companies. Both the Commerce Commission and the Serious Fraud Office are also looking to investigate Blue Chip and associated companies.