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The housing market: is it as bad as it sounds?

Thursday, January 26, 2006

The housing market: is it as bad as it sounds?

In a response to the impending arrival of Reserve Bank Governor Allan Bollard to Christchurch, Jeff Staniland, Chief Executive Officer of Mike Pero Mortgages comments on mortgage rates in relation to the Official Cash Rate (OCR) as set by the Reserve Bank.

Mike Pero Mortgages is the largest supplier of home loans in the country. Sep
tember, October and November 2005 were all record months for the NZX listed company. These results show that despite what the Reserve Bank’s Alan Bollard would like the public to believe about being wary of the property market, there remains a strong demand for buyers to own homes and property.

In the current mortgage broking and property investment market, Mike Pero Mortgages CEO Jeff Staniland cites the main issue presently facing many home owners is that they are coming off fixed rates and need to refix their mortgages.

At the height of the 2003/4 property boom, many homeowners took advantage of lower rates fixed mortgages for a period of 2-3 years. Faced with paying an extra 1-1.5% some of the same homeowners may struggle to cope financially. This combined with other factors such as rising petrol costs, high short term debt, layoffs and the closure of some companies looks set to impact the market negatively.

“With the highest nominal interest rates in the western world underpinning an overvalued currency, the Reserve Bank should look to decrease the Official Cash Rate (OCR). Or, at the very least leave it at its current rate,” says Jeff Staniland. Staniland’s words are timely for the mortgage broking industry and for the property market. The Reserve Bank has lifted the OCR eight times and has come under fire for advocating the need for homeowners to show care in increasing their borrowings and to increase and diversify their savings.

“We believe that the housing market is still strong and properties should hold their values, however the length of time it takes to sell a property is likely to increase,” says Staniland.

Bollard is set to deliver his first public address of the year to the Christchurch business community tomorrow at a luncheon being hosted by the Canterbury Employers Chamber of Commerce (CECC). CECC Chief Executive, Peter Townsend, says that Bollard’s annual address always arouses significant debate from local and national business leaders.

“A business community that is well informed and rigorously debates financial policies is to be encouraged. The implications of interest rates are very significant and are important to all NZ businesses and the NZ public,” says Peter Townsend. Staniland adds, “one has to feel some sympathy for the reserve bank Governor whose only tool in managing inflation is the rather blunt and indiscriminate OCR.”


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