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Residential property market survey

Although bank reports are often as dry as a brick in the Sahara the latest residential property market survey done by the BNZ has some interesting information if you care to take a look. Truly. It’s on their website.

I noted a couple of things.

Firstly, that first home buyers are active in every region across the country. Which would seem to match very closely what we’re seeing too. After all, they’re the kind of client we most often assist.

Secondly, that prices are perceived to be rising. Whether or not that’s really happening is almost irrelevant – perception is reality. Having said that we’ve had several clients just recently really pushing the boat out to ensure they’re putting their best foot forward in order to buy a property so if prices are rising I’m not surprised. Especially in Auckland which always leads the way in terms of property price rises.

Thirdly, that the main reasons for sales failing to complete is because finance cannot be obtained or because building inspections reveal problems. No doubt the two are related but I still have a niggly feeling that some people are going into a buying situation without a pre-approval. God knows why you’d put yourself through the heartache but it still happens.

It seems some lessons are worth repeating:

The starting point for any home buyer is to get your pre-approval sorted. That’s true even if you have tons of equity built up over the years because lending criteria can and does change. What might have seemed all too easy 5 years ago may not be the walk in the park you remember. The GFC changed all that. Understand what you can and can’t do (financially) and you’ll be in a great position to be decisive and act quickly. Both great attributes when negotiating a house purchase whether it’s your first or fifth time.

The leaky building crisis still casts a pall over the property market and wise buyers will take the precaution of getting a building inspection done so as to avoid buying a lemon. Even if the house appears to be in perfect nick I’d still say you get one. Why? Mostly because they always reveal something that needs repair and you can use that to your advantage in terms of squeezing a lower price out of the vendor. If spending $500 on a report ends up saving you $10,000 it’s money well spent I say. If it reveals a house in perfect nick so much the better. The main thing is you didn’t end up buying a problem. Then it really is money well spent.

100% mortgages coming back?

Making headlines recently in Sydney’s Daily Telegrpah was an article on high LVR lending with bank and non-bank lenders alike reported to be getting more comfortable lending up to 100%. What? I hear you say. Isn’t this the sort of behaviour that got economies in the poo in the first place?

Well, no, not really. Lending to people who didn’t have the ability to repay their mortage because they didn’t have income was actually more of a problem – especially when not making repaymetns became a reality! Would you be brave enough to lend to someone who wasn’t good for it?

Anyway, 100% lending did come to Godzone for a (short) while and even in those heady days the hurdles were pretty tough to get one. For a start you needed an income! Suffice to say that 100% loans were much less risky than lending to someone without income at all mostly because lending principles (like make sure the borrower can repay)were adhered to.

Will 100% lending come back to Godzone? Well, on the face of it you’d have to say ‘No way Jose’ but at least one Ozzy lender is willing to give you the entire purchase price plus associated fees – thats a mortgage of 105%. The main banks over there are thinking about getting in on the act too with ANZ pushing the boat out to 97%. Gutsy stuff from one of the big boys.

All this is relevant to the local market because the big banks here including ANZ, Westpac and ASB are Ozzie owned. Although the markets are quite different, they’ll be talking to each other and keeping an eye on what’s happening across the ditch, mark my words. And while some people predict a further decline in property prices in NZ, prices seem to have stabilised at about 5% below the 2007 peak. Since banks like stability, you never know.

On the other hand lets be honest – if you’ve got the income to pass the lending criteria for a 100% mortgage, you’ve got the income to save a 5% deposit. And thats all you need right now…

 

Mortgage Round Up – Sept 2010

Mortgage Round UpDo we do have momentum?

There is no doubt that the economy is recovering, albeit slowly and on a slower basis than previous months.  Yes it’s a bit patchy with uncertainty still holding us in check but this will be the pattern for the balance of the 2010.

Economic Background
New Zealand will always feel the vibrations of any shocks overseas whether they be good or bad and currently China’s economy is enjoying strong growth to which our exports are nicely exposed. Recent highs in the forestry sector are testament to that relationship (with trees being felled it also makes it easy for me to get training logs). However we are then held back by the continuing concern in the US of a double dip recession, hence the nervousness that runs across our own market and the bumpy ride reported in the newspaper.

Despite an increase in the number of people heading across the ditch in search of better jobs, income and lifestyle, our labour market appears to be holding up relatively well. But really, why go when the Hauraki Gulf snapper fishing is on the up as we move into spring! Come on, priorities people!!

Internally our domestic economy remains weak with both housing and retail struggling against the strong head winds of you and I doing what we can to reduce debt and the renewed conscious effort of living within ones means. While these factors do work against strong economic growth today, unwinding the HP’s, credit cards and knocking the mortgage back are critical ingredients which support a long term and sustainable upswing in the economy.

You can expect property prices to remain as flat as a pancake for the rest of the 2010 with a gentle rate of growth next year which we think should be in line with inflation of about 2-3%. Interest rates will rise too as the economy picks up but again, don’t expect a dramatic change of gear. If you’re in the market, its still a good time to buy a house.

Your Borrowing Strategy
In the past two weeks we have seen a sizeable easing of midterm fixed interest rates mostly because domestic banks have had to adjust for an economy that hasn’t picked up as fast as expected. At the same time we are seeing a growing uncertainty as to the state of the European & US economies driving their funding rates back down. Regular readers will know that these economies are where NZ banks get the money they lend to you and I and the result is little difference between variable and midterm fixed interest rates on offer in Godzone right now.

On that basis, the question has to be asked: is there any reason to stay on the floating rate? Two year money at roughly 6.85% looks like decent value right now methinks.

However, if you want to keep overpaying without penalty keep some of your loan floating and go hard, fix the rest.

What are your thoughts on that? Do you have a different approach in mind?

 

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