to the Valu in Review for July. For the first time in 5 years the Official Cash Rate has gone down! However there still appears to be a lot of talk of doom and gloom. In the current market the impact on first time home buyers is the positive affordability indicators. Renting seems to be flavour of the month as more people choose to rent their house out and renting is considered more affordable. As always please read, learn, enjoy ....

.... and happy investing (in the changing market)!
 

The New Zealand financial sector continues to be shaken by a number of finance companies going into liquidation, stopping payments to investors, or re-negotiating terms of investment/ dividends/ repayments. Many of these finance companies lent to property developers. A number of property developers are defaulting on their repayments to finance companies and are looking to off-load developments in a depressed property market with the returns to finance companies lower then expected. The big losers are the New Zealand public who have invested in finance companies. As a result New Zealanders are closing their wallets, retailers are suffering, and the housing market is also suffering.

Inflation continues to rise driven primarily by food and oil prices. On an annual basis inflation is now 4% as at 30 June 2008. This is an increase of 1.6% for the June quarter and was a lot higher than many economists had predicted. It is the highest quarterly increase in inflation for 18 years. The Reserve Bank believes inflation will peak at over 4.7% within the next 12 months.

The credit issue arising out of the United States at the end of 2007 and beginning of this year continues to have fall out affecting New Zealand. There has been an increase in the costs of inter-bank borrowing (which many banks in New Zealand need to fund mortgages), and obtaining finance for high risk funding is now virtually impossible. Those banks that fund their mortgages from deposits in New Zealand and have a strong NZ ownership are believed to be placed to be more competitive going forward.

The Reserve Banks review, on 24 July, reduced the Official Cash Rate by 0.25% to 8.0%. The first cut in 5 years. This is the beginning of a series of reductions that economists predict the Reserve Bank will make. The reduction of the rate was as a result of the rising treat of a recession.

Economists are unsure if the cost of the inter-bank loans (as mentioned above) will correlate into cheaper mortgages in the short term. Given that approximately 88% of mortgages are fixed, those mortgages up for renewal are still going to be facing an increase in the mortgage rate of at least 1% (from around 8% to around 9%) to re-fix for 2 years.

Businesses are starting to feel the economic pinch with a number of large scale redundancies - adding to the unemployment rate.

Mortgage applications are down 21% for the 6 months ended June 2008 on the same period last year.
 

Figures provided by the Real Estate Institute of New Zealand, for the month of June, have a national median sale price of $340,000 (May 2008 $345,000, June 2007 $347,500). The volume of sales is at the lowest they have been for 16 years at 4,305 sales (May 2008 = 4,372, June 2007 = 7,474). The median days to sell has also increased from 59 days in May 2008 to 53 days (June 2007 = 30 days).

The figures released by a national valuation firm, based on the average figures for the period April - June indicate that the national average sale price increased 0.1% to $392,436 compared to the same period last year. As a comparison May had an increase of 2.4%.
 

The current conditions are seeing some creative ideas to sell houses.

These include reverse auctions (where the auctioneer starts at a high price and decreases the value of the property - the first person to put up their hand wins), cars, overseas holidays or you simply do not sell and rent your property out instead.

 

A combination of falling house prices and a lowering in interest rates has seen an increase in the affordability of houses according to the Wizard Home Loans Affordability Report. The improvement is the biggest in the 6 year history of the report.

The monthly report reviews what proportion of the median after tax income is needed to service a mortgage of 80% on the median house price. The least affordable month was November 2007 where it took 83.8% of after tax income. In May 2008 it was 80.6% and in June 2008 it was 74.7%.

It is expected the housing affordability will improve throughout 2008.
 

According to the Property Investors Federation it is cheaper to rent. Owning a house is thought to be 2.5 times more expensive than renting. This is based on a 25 year mortgage at 90% of the national median house value. Ownership was calculated to cost $745 per week (which includes all costs such as rates, insurance, maintenance etc). The national median rent for the same period was $305 per week.

Currently rents are rising slowly. The average rent for a three bedroom house in Auckland in July 2007 was $420 per week. As at June 2008 the rent was $436 - an increase of 3.8%. Nationally for the same 3 bedroom house the rent in July 2007 was $320 and as at June 2008 it was $340 (up 6.25%).
 

Lobbying is underway to make changes to the Residential Tenancies Amendment Act Bill. The Bill, in its current form, limits tenants' liability to 4 weeks if the Tenancy Tribunal believes the tenant did not cause the damage intentionally or recklessly. Changes being lobbied include the removal of the cap on the amount of bond that can be collected (4 weeks) and the test for damage caused to the property should be based on negligence of the tenant not if the damage was intentional or reckless (which will be hard for landlords to prove). The lobbying on behalf of landlords focuses on the fact there are more high value houses being rented, more houses are being rented furnished, and landlords are encountering more damage to their property.