Cairns Lockie Mortgage Commentary 29 August 2008

Cairns Lockie Mortgage Commentary

Issue 2008 / 15 29 August 2008

Welcome to the fifteenth fortnightly Cairns Lockie Mortgage Commentary for 2008. We aim to keep you informed on developments at Cairns Lockie, Home Loans and the mortgage market in general. Previous issues of this commentary can be found on our website http://www.emortgage.co.nz/newsletters.htm

The Money Market

This morning (8 am on 29 August 2008) the money markets were at the following levels:

Official cash rate 8.00% (unchanged)
90 day bill rate 8.15 (down from 8.27)
1 year swap rate 7.65 (up from 7.64)
3 year swap rate 7.14 (up from 7.10)
10 year bond rate 6.06 (down from 6.19)
Kiwi dollar 0.7057 (up from 0.6986)

A Bit More Optimism Coming

A recent survey by the ASB Bank confirms that there is a slight improvement in sentiment towards the housing market. The number who believe that it is a good time to buy a house, is at 37% up on the 25% recorded in May. This still means the majority do not, but this is decreasing. The May and August readings are the lowest in housing confidence since the survey commenced in 1996. One of the main reasons the Bank believes, for this improvement is that mortgage interest rates have now peaked and in fact one rate cut has been made. Further cuts, including one next month, are expected this year. Those in the market will be focussing on the proposed interest rate cut next month by the Reserve Bank as some commentators are predicting it may be half a percent rather than a quarter. Every rate cut is positive news for home loan borrowers.

House Prices in the UK

According to Rightmove, the United Kingdom's largest on line housing website, housing prices have been declining in the UK. Sellers, on average, are asking 5,403 pounds less for their homes than a month ago. The average house price in the UK is 229,816 pounds or $NZ 605,000. In London, which is one of the most expensive capital cities in the world, the average dwelling price is 379,162 pounds (or $NZ 998,000). Prices have started to ease now in London according to the real estate industry.

Rural Property Prices

One segment of the property market that is continuing to do well is rural. The median farm price countrywide is $1.8 million, well up on $1.27 million the previous year, according to the Real Estate Institute of NZ. The number of farm sales is holding up. For the three months to the end of July there were 601 sales, just slightly down from 669 for the corresponding period the previous year. The dairy farming sector is the most active and expensive, with a median price New Zealand wide of $4.2 million. Rural real estate agents have been saying they are noticing an increase in demand for good grazing units. The only part of the sector which showed some weakness was lifestyle blocks. We have always believed these to be part of the residential sector, and they appear to be following the trend of this sector, which is weaker than the rural sector.

Finance Company Lending

Our subsidiary company, General Finance Limited is still in the market looking at smaller bridging and second mortgages. Our criteria are a bit stricter than say two years ago, but we are looking at lending proposals. At the same time we are looking at receiving deposits from investors. Our new prospectus will be submitted for registration at the Companies Office shortly and then off to the printers. We expect it to be ready in about a fortnight. We are delighted to be a retail deposit taker in a much diminished market.

Our current mortgage interest rates are as follows:

Variable rate 10.65%

Lo Doc Home Loan 11.55

One-year fixed rate 9.48
Two-year fixed rate 9.34
Three-year fixed rate 9.24
Five-year fixed rate 9.79

Line of credit facility 10.75

Regards
William Cairns
James Lockie

ENDS

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