General Finance Mortgage Commentary

Issue 2013 / 8   24 May 2013

Welcome to the eighth fortnightly General Finance Mortgage Commentary for 2013.  We aim to keep you informed on developments at General Finance Home Loans and the mortgage market in general. 

The Money Market
This morning (9am on 24 May 2013) the money markets were at the following levels: 
Official cash rate    2.50% (unchanged)
90 day bill rate       2.65 (unchanged)
1 year swap rate    2.73 (up from 2.67)
3 year swap rate    3.12 (up from 3.01)
10 year bond rate   3.48 (up from 3.25)
NZ/US dollar      0.8135 (down from 0.8449) 

The Budget
Last week was this current Government’s fifth budget. It did release a couple of policy initiatives which will have an effect on the property market. First it is progressing to make more land available in  Auckland and to speed up council consents in this area. This is positive as Auckland housing problems are based on a supply shortage.  The Government is extending its home insulation package. This is a worthwhile incentive as warmer houses do reduce the incidents of sickness and health related issues.

Rate Rises in Auckland
Recent newspaper headings claim that this year there will be an average rates rise of 2.9% across the city. This is misleading. What they should be telling us is the average rates rise across the seven former city council areas. This would show that in the old Auckland city area the average rates rise will be closer to 10%. It is estimated in Auckland that around 94,000 households will be faced with the full maximum rates rise of 10%.  For this year, as in the previous two, the 10% cap will apply. Had it not been for the cap, a number of households would have been living with rate rises in excess of 10%. This is unacceptable, especially with inflation running at 1-2%. What this shows is the council needs to be more innovative, cost effective and efficient in funding its projects. It just cannot keep flogging the poor old rate payer.

OCR Changes Across the Tasman
Over the past 12 months the overnight cash rate in Australia has dropped from around 4.0% to 2.75%. During this period our rate has been a constant 2.5%. The reason for this is that the Australian economy has been slowing down. This month’s Australian budget, released just before ours, confirmed this. There are implications for us. Firstly we have seen the NZ currency strengthen against the Australian dollar. Australia, after China, is our largest export market and we are dependent on their tourists coming here. It is likely that our emigration to Australia may slow in the coming months and a few unemployed Kiwis may start coming back. Overall the economic health of Australia does affect our country. 

House Prices Above Their 2007 Peak
Most people are aware that over the past two years house prices have been strong in Auckland. Christchurch has seen an active market over the past 12 months as people come to terms with the earthquake and how the rebuild is emerging. Overall the average house price across the country stands at $431,967, which is now 4% above the 2007 figure of $415,352. This is significant, as 2007 marked the beginning of the global financial crisis.  There are many countries, particularly in Europe, where house prices remain well below their 2007 levels. At least in this country we can say that in most areas (but not all) average house prices are above the 2007 levels.

As everyone's personal circumstances are different and the tax treatment of their affairs is always determined by their own circumstances, you should not act on any comments made in our Commentary without obtaining your own independent professional advice.

General Finance Limited is a Registered Financial Services Provider, with registration number  FSP8882.