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By now, the majority of main banks have moved to increase mortgage rates in light of the official cash rate rise.

Further interest rate hikes expected by the Reserve Bank of New Zealand this year. With some economists predicting floating mortgage rates will be up to, or just under, 7% by Christmas.

What we can definitely surmise is that we are operating in an uncertain market; with several experts suggesting Kiwis look into fixing their house mortgage rates as a pre-emptive option. Opting to stagger when each fixed mortgages come off its fixed terms is one way of mitigate the effects of

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While new listings showed an increase from January levels, the number of new listings in February (12,167) was below predicted levels, with 7% lesser properties than February last year.

Inventory levels of houses for sale fell in February. The number of available homes for sale on the market easing to 26 weeks of stock.
This remains well below the long term average of 37 weeks, indicating that the market remains in the seller’s market.

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The national median price rose $33,000 to $415,000 (8.6%) compared to February 2013, areas across the country that saw increases were Waikato/Bay of Plenty, Hawkes Bay and Canterbury/Westland all reaching a new high medium price.

Sales volumes were down in February by 7.6% when compared to February last year, but up by 29.8% on January sales. There is evidence that the national sales volume is easing.
The lift in the national median price, particularly Auckland is a reflection of the price bracket that the sales are occurring. The most activity is in the $600,000 – $1 million price bracket. The first home buyers having reduced sales numbers within the lower bracket.

First home buyers are reported to be tentatively returning, some getting assistance from families and signs of some easing from bank lenders. However, sales volume for the first home buyer category, are still mixed across the country.

The national average asking prices of new listings rose to record levels in February. The seasonally adjusted asking price rose by 1% to $483,099, and is up 9% as compared to February last year. Auckland drove the national increase, reaching a new record average asking price of $677,370.

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With the OCR rate increase, it pays to remember two vitally important things as you contemplate whether to switch to a fixed rate and when to do it.

First, every policy tightening period is a suck-it-and-see exercise.
You never know for certain how borrowers, savers, businesses, and the exchange rate will react to rising interest rates.

Last time the RB started raising rates just over a decade ago, the common view was that the cash rate would rise from 5% to 6.25%. I picked 7.25%. The actual peak was 8.25%.
The second important point to note about this rate tightening period is that
no-one has an economic model which tells us how economies move after almost falling into GFC in 2008.

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NZ looks to be in very good shape compared with other economies where uncertainty persists about the true underlying strength of the recovery in the United States, Japan, Europe, and to a lesser extent the UK.

Confusion also exists regarding the immediate pace of growth in China’s economy with some data coming in weaker than expected (not exports though), but the PBOC facilitating some unusual weakness in the Yuan for reasons unclear.

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Official Cash Rate Rises
The Reserve Bank has increased the official cash rate to 2.75%.

It is the first time in three years that the OCR has been changed. In 2011 it was dropped to a record low of 2.5% in response to the Canterbury Earthquakes.

In a statement, Governor of The Reserve Bank Graeme Wheeler says that the increase is necessary to moderate rising inflation which is expected to continue over the next two years.

The Reserve Bank sees a faster pace of inflation than in its December forecast, with the consumers price index rising to 2 percent as soon as the June quarter, a level the bank had previously expected in mid-2015. While a strong currency will keep a lid on imported inflation, the bank expects non-tradable inflation to increase to about 4 percent.

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A loan-to-value ratio (LVR) is a measure of how much a bank lends against residential property, compared to the value of that property. Borrowers with LVRs of more than 80 percent (less than 20 percent deposit) are often stretching their financial resources. They are more vulnerable to an economic or financial shock, such as a recession or an increase in interest rates.
LVR restrictions or ‘LVR speed limits’ restrict the amount of high-LVR lending a bank can do. These restrictions reduce the risk of a sharp housing downturn and the loss of equity that would result, particularly for highly-indebted home owners.
Latest figures shows that first home buyer activity declined in December and January. In December 2013, first home buyer sales in a month dropped to 19%, this was sitting at 20% for the same month in 2012 and 2011. January saw a further slump to 18% in first home buyer sales segment, which was also at 20% in January 2012 and 2011.
This is the lowest percentage of first home buyer sales in any month since mid-2010. It is also the lowest actual number of buyers in any month since the late 2010 and 2011. The flurry of activity in September and October from first home buyers appears to be over and this will not improve until the LVR restrictions are lifted. Predicted inflation increases look set to further disadvantage first home buyers without significant deposits.
It would appear from data on first home buyers that all the main cities have been affected by the LVR and have registered a drop. Hamilton, Rotorua, Napier and Wellington City are the worst hit regions, reporting more than a four per cent drop.

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The New Year has started with a healthy flow of new listings, which may help rising property demands. Realestate.co.nz report that 9,267 new properties came onto the market, up 5% from last year. This increase was across most of the country, excluding Hawkes Bay, Marlborough and Southland. Of the 13 regions that reported higher listings the largest increases were in Coromandel rising 39% and the Central North Island with a 29% increase year on year.

The inventory of stock on the market is also recovering slowly, with the number of available homes for sale on the market easing to 27 weeks of stock. This is still down however from the long term 37 weeks.

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The New Zealand economy remains firmly in an expansion mode. Despite recent falls in equity values and concerns over China and emerging market economies, New Zealand’s economic situation remains positive. Employment is showing strong signs of improvement for 2014 as the economic confidence improves and has already shown a 1.1% improvement.

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A recent survey revealed that two thirds of New Zealanders believe a warrant of fitness system for private rental properties should be in place. Central and local governments have been working on a system to appraise tenanted homes. This is a scheme being tested by councils in five cities, including Auckland, Wellington and Christchurch this month.

The Government said it intends to introduce a nationwide certificate system, starting with Housing New Zealand homes. So watch this space.

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