16 December 2009
NEW REGULATIONS FOR FINANCE ADVISORS
2010 will see a raft of new legislation to regulate the activities of financial advisors. This is in response to the collapse of finance companies and the loss of millions of dollars of investor's funds. Apparently finance consultants were pushing dodgy investments onto unsuspecting investors to make commissions. It seems that mortgage brokers are to be lumped into the same category as these unscrupulous individuals even though they operate at the other end of the industry, that is borrowing not investing. Since bank commission rates paid on home loans are roughly the same regardless of the bank paying them, and since they are paid by the big banks that control the life blood of our economy but are higly regulated anyway, it hardly seems valid to associate this activity with those of dodgy salespeople looking to make a quick buck at the expense of some unfortunate retired couple.

So mortgage brokers are now required to become financial advisors which seems to be outside their original brief. The costs of this of course will be borne by the brokers themselves and no doubt a flourishing gravy train will now develop as parasitic players (administrators, lawyers etc) insert themselves into the process for profit unrelated to the consumer's interests.

I can't help thinking that it will be the consumer who suffers finally as the broking industry gets crushed between smothering bureaucracy and continued pressure from banks which resent the presence of brokers anyway. Mortgage brokers have a valuable role to play in presenting an independent and unbiased view of the various options available from the banks. Try getting that from front line staff at any bank where they are instructed to sell bank products for the best price they can get. Bankers work for the banks, investment salespeople work for themselves or their employers. Mortgage brokers work for the customer.

08 July 2009
RECOVERY UNDERWAY?
Hidden amongst the latest statistics released this week is one important to everyone in the real estate business in Auckland. The migration flood has reversed. Net inflow is expected to be 20,000 this year, bulked up by New Zealanders returning from overseas.

More than half of this migration will settle in Auckland. Given an average of 3 people per dwelling, this means the city of Auckland will require a further 3,300+ dwellings to house them.

That’s a demand that can’t be met by current stock given the apparent shortage of listings. Some will go to apartments but the pressure on housing will see the building industry crank up again and prices of existing stock rise. This is sure to make headlines which will make stubborn sellers decide to list and cause stubborn buyers with unrealistic expectations of super bargains to think again.

Increased migration will also see a rise in unemployment as the economy can’t supply the increased demand for jobs right now. But even if the unemployment rate reaches 10%, there’s still 90% in work. Enough to keep the housing market bubbling along. And unemployed people have to live somewhere too. They’ll pay their rent from the dole.

Of course the migration factor has been around for a few months now and the statistics are only just picking it up. What needs to change is what the media is reporting. This is what influences sellers and buyers. Expect to see these kinds of stories from now on in the media along with the doom and gloom they are so fond of preaching.

Brace yourselves for the on-coming rush in real estate, the next wave is on the horizon.

26 May 2009
FIX OR FLOAT?
It’s now two years since a lot of people fixed their loans for 2 years at around the 9% mark. That means that these loans are now coming off their fixed rate and people are faced with the pleasant choice of re-fixing their loans at much lower levels or letting them default to the floating rate.

The difference in  short term and long terms rates is about 2%. That’s significant. Why? It seems there are a lot of people with savings who are not happy getting around 3% to 4% after tax so are demanding more. Banks such as Kiwi Bank are responding by offering higher rates for longer terms.

They now need to on sell these at around 7.50% or more for five years.

Should we be scared into taking the “safety” of a 5 year rate at 7.50% when we can get them 5.45% or less for 6 months or one year?

Quite a conundrum.

The less adventurous of us may well be advised to take the safe rate rather than risk rate rises over the next 5 years.

But let’s look at it another way.

The Reserve Bank is convinced that lower rates are here to stay for a while yet. Just how long is “a while yet”? Let’s guess 2 years shall we.

That means we can safely take a 6 month or one year rate at 5.50% or less and apply additional funds to the principal to reduce our interest bill even further. Rates would have to rise significantly higher than 7.50% after two years to negate any gains made in the meantime. Especially if borrowers keep their repayments at the same level as for the last two years and compound the effect on principal.

Floating rates seem to be sticking around the 6.40% mark and even if they drop further, it will take up to 2 months to filter through to existing loans as banks don’t pass it on immediately.

So a 6 month rate seems to be the best recommendation right now.

We are busy negotiating these re-fixes right now and providing another valuable service to existing clients.

Interest rates are a major driver of real estate and combined with returning expats, fewer people moving overseas, demand for real estate is increasing and should remain this way for the foreseeable future despite the economic bad news that seems to keep coming.

10 March 2009
Hoisted on their own petard!
There are reports that media advertising revenue is down and people working in the media are being laid off or asked to work shorter hours. It's affected TVNZ and the NZ Herald. Funny that. Since early last year these organisations have been preaching the impending doom and gloom because it made a great story, they sell more advertising as a result of more viewers or readers.

I wrote to the NZ Herald warning them that printing opinions as facts would indeed bring on the recession they were predicting and their revenue would suffer as their advertisers began to spend less in response to customers cutting back due to the doom and gloom being spread. Predictably, they didn't respond or print my letter.

Their big advertisers are the real estate companies who of course have seen a massive drop in their income and who have curtailed their advertising drastically. All a result of opinions presented as fact that house prices would plummet by 30%. Well, they didn't but people stopped buying because Granny Herald told them to. So the real estate agencies and others stopped advertising etc etc etc and so on and on ad nauseum until we get the depression they predicted.

How does Granny Herald respond to this? Let's print some good news stories about the housing market recovery and how things are looking up. So instantly, people start buying houses again because they are told to by the same people who told them not to buy for at least another year! If this is not an admission that the media knows they can create the news rather than the mantra that they simply report it, then nothing is. Their cynical manipulation of our markets for their own profits is not dissimilar to the actions of the financial markets that is creating so much misery as well.

Too much power and influence in the hands of unscrupulous publishers. Sadly, true journalism in NZ is dead and a thing of the past.

24 December 2008
MERRY CHRISTMAS - not!
Christmas may not be very merry for those in the banking industry who either lost their jobs or got pushed sideways when business dropped away. Managers and accountants in these big banks only look as far ahead as their next financial report and bonus, so they say "let's clear out the current surplus and write a report about how wonderful we are at managing costs and running the business". Of course as soon as things pick up, there's not enough staff to do the work. Today, Westpac has a handful of stressed staff trying to assess more applications than they can keep up with. Customers get frustrated, deals are endangered but the managers and bean counters who caused it enjoy their bonuses and Christmas with the family. Sometime next year, it will occur to them that they are understaffed and so the pendulum will swing the other way and they will write their reports about how clever they are getting business to grow. Such is corporate-think.

The same people also impose severe restrictions on good customers who did nothing wrong but will be punished for the excesses of the few who didn't pay their loans back. So instead of helping the country to recover by providing credit to those who didn't let them down, they drive it deeper into trouble. Now you cannot borrow money unless you can prove you don't need it.

Here's my prediction: some time in the future, non bank lenders will once again enter the market and provide funds at a premium price. Our friends at the banks will suddenly see their business going elsewhere and do the same and the whole stupid cycle will start again - unless Government puts some sensible regulations in place by way of boundaries to prevent excesses. That way we might break the greed/fear pendulum of lenders and investors.

4 December 2008 .... RATES DROP, MY CLIENTS SAVE MONEY!
I sit here typing away with the feeling that the worst is over. Mr Bollard has dropped the OCR to 5% and the banks are responding quickly. He also says the recession is over. Great! Let's get back to living again. It was always simply a matter of confidence and let's hope the media reports it as thoroughly as they did the doom and gloom. The last few days and hours have been hectic. I predicted this cut and have been contacting clients on fixed rates to advise them on whether or not they should break their rate to take advantage of the predicted new rates. Break fees are based on differences between a client's fixed rate and existing rates. When they go down it costs money to break it. Only two banks that I deal with, ASB and Sovereign, have in my opinion applied this rule fairly and as a result I was was able to break the loans of many clients and save them many thousands of dollars. The others, ANZ National Bank and Westpac did not. In what seems a calculated action to prevent customers from breaking their loans, they applied break fees that exceeded the possible savings. This was especially true of Westpac. I did manage to get some long term rates with ANZ and National Bank broken to the benefit of the client, but short term ones were not going to work. Big credit to ASB and Sovereign people who worked tirelessly and cheerfuly through this very stressful time with the result that the projected savings for some are as high as $30,000! A quick calculation shows projected savings for my customers in excess of $550,000 in interest payments over the next 5 years. Not a bad result for five days of intensive work. I notice that the banks did not contact their customers to offer them this opportunity. It was left to brokers to do it. More evidence that the banks work for themselves not their customers, whereas a good broker will think about their customers first and act accordingly. Unfortunately not a lot of money will come my way as a result of my efforts, but I get the satisfaction of seeing a lot of people very, very happy.

30 September 2008
People are asking me if our banks are going to collapse like they are overseas. The link below has a humorous but enlightening explanation of the financial crisis.

New Zealand banks hold their own mortgage books and lending policies are much more conservative. It was our finance companies that lent to the sub-prime market and they are already gone without the kind of impact it is having in the USA.

The link speaks for itself. Enjoy!

http://www.youtube.com/watch?v=UC31Oudc5Bg

7 August 2008
It may be the warmer weather or it may be the lower interest rates. Perhaps it's both, or even the classic All Black win against the Aussies, but at least we see the market starting to move again. As I predicted the suppressed demand is beginning to emerge as more people start looking seriously to buy.

Many of my clients are also coming off fixed rates right now and facing the unpalatable fact that their mortgage payments will be higher. It could have been a lot worse but rates have dropped in the last two months and the increase is nowhere near what they had feared. But the good news is that in the last two years they have increased their wealth quite dramatically through the rise in the value of their home.

My advice to my clients right now is to fix for no more than six months The smart money is on rates coming down to the mid to low 6s over the next 12 months. Then we should look at locking it down for as long as we can.

28 July 2008
At last we see some light at the end of the tunnel. The Reserve Bank has dropped the official cash rate to 8.00%. ASB responded immediately by dropping its 2 year fixed rate accordingly. Hopefully this will go some way to repairing the damage done to the housing market by blunt instrument policies, Government interference and irresponsible media reporting. Of course the out of control housing market had to be tamed somewhat, but reports of 30% drops in values, 100,000 mortgagee sales (where do they get these figures from!) were wild exaggerations and put people off buying when they were ready. That has not helped those who for whatever reason needed to sell and some have taken big hits, often by investors who are out there sniffing out the bargains. Others sellers bide their time waiting for sanity to return. I predicted this some months ago. I warned that commentators should not look to the past to predict the future. Things are different from the 90s when everyone was on a floating rate. Most people are now on fixed rates and are not affected by the day to day movement of interest rates. That in itself is a stabilising influence on the market.

Let's hope that the media grunts stop interviewing their typewriters and get out and try to do some real journalism for a change.

22 July 2008
Once again the NZ Herald publishes a story about housing that is misleading. "Buying a House is more than twice as dear as renting" screams the headline. Did their calculations take into consideration the fact that an increasing amount of principal (the borrowers own money) is part of the 'cost'? Does it assume that rents will not rise as they have done in the past? What happens after the loan is paid off? No more payments, but if you're renting it goes on forever. Buying a house is a long term investment.

Comparing renting to buying over one week instead of a lifetime is shabby and lazy journalism. Don't be put off buying your first house by a report slanted to sensational headlines designed to sell newspapers and by extension, advertising.

Shame on you NZ Herald.