December 10, 2009
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December 2, 2009
Interest Rate Outlook December 2009
Interest Rate Outlook
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As the housing market starts to stabilise after a sizeable recovery (from record lows) we are starting to see some conflicting economic drivers at work. Average days to sell remain low and stable at 34 days while net migration continues to rise to a 12 month total of 18,500+ people, these standard drivers would normally suggest the real estate market would continue to surge, but in fact it has settled somewhat possibly driven by a continual lack of quality stock as many consumers appear to still be reluctant to sell & upgrade property, incurring more debt given the underlying nervousness that still exists around unemployment. Additionally while net migration is strong it is being driven more by less Kiwi’s leaving our sunny (yeah right) shores & thus it doesn’t drive the same demand for property purchases as overseas immigrants arriving does.
The Reserve Bank reports a fairly stagnant picture in terms of credit growth as many consumers are still focusing on deleveraging their position by selling down some of their property portfolio and clearing debt in what is still considered uncertain times by some. This process together with the ongoing lack of appetite from the banks for asset growth (lending) due to their internal funding restrictions are major factors in holding back the economic recovery.
Our ongoing theme of recommending short term interest rates as the best value in the interest curve still rings true. While it is inevitable that short term interest rates will rise at some stage we still believe our strategy applies given that the market has already priced expected interest rate rises into many of the longer term rates with over 2% difference as an example between variable rates and 3 year fixed rates presently.
Additionally given some of the new funding restrictions placed on our banks by the Reserve Bank requiring them to increase their level of liquidity it would appear that we have now arrived at a more normal place of lending where longer term interest rates will carry a premium for the foreseeable future putting our interest rate yield curve in line with the rest of the world. Put simply if you want certainty in your interest rate you will pay a premium for that certainty with long term rates set to carry an ongoing margin.
For those of you with a higher level of debt a worthy consideration is to hedge your bets by splitting your loan, fixing half on a longer term rate and carrying half on the current variable rate.
What’s Hot
More and more clients are contacting us for advice on what they should do now that their old fixed rate loan is up for renewal. While the above article indicates short term fixing or variable rates are the best value today this very much depends on the clients circumstances, a key part of our ongoing service is to provide free advice in the area of which rate suits a clients circumstances best – Help your clients, refer them to us!
Deal of the Month
While banks continue to remain tight on their lending criteria if the client’s mortgage application is put together correctly it will often get a deal across the line, last month we helped a young physiotherapist into his first home even though he only had a 10% deposit and been self employed for 18 months. He had been declined elsewhere before he found our door & we got him sorted with a mainstream bank – We deliver!
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Robert Kiyosaki Why the Rich Get Richer
November 24, 2009Taking Steps to Prepare for the Worst
by Robert Kiyosaki
Posted on Monday, September 28, 2009, 12:00AM
In Sunday school I was taught the parable of the pharaoh of Egypt and his dream of seven fat cows being eaten by seven skinny cows. Deeply disturbed, the pharaoh sought the interpretation of his dream. A young slave boy interpreted the dream to mean Egypt would have seven years of plenty to be followed by seven years of famine. The message: Prepare for the lean years during the years of plenty. The pharaoh prepared Egypt for the lean years and led it into an era of prosperity.
My rich dad used the story of the three little pigs to make a similar point. As you know, one pig built his house out of straw, the other of sticks. Once the first two pigs finished their houses they began to party, taunting and laughing at the third pig who was taking longer, building his house of bricks. After the house of bricks was finished, a big bad wolf appeared and blew down the houses of straw and sticks. If not for the shelter of the house of bricks, the first two pigs would have been pork dinner.
In 2007 a big bad wolf known as the ’subprime crisis’ blew down financial houses made of straw and sticks, houses known as Lehman Brothers, Bear Stearns, AIG, Merrill Lynch, Washington Mutual, Fannie Mae, and Countrywide — as well as the homes and businesses of people who built their lives on straw and sticks.
Lessons of the Pharaoh
Last month’s column was about reasons why people should prepare for the worst. This article is about how to prepare for the worst. Preparation begins with understanding the lessons of the pharaoh and the three little pigs: Prepare for the worst even when times are good.
For me, it was not easy to follow these lessons, especially during the boom years. It was tough preparing for bad times while my friends were enjoying the good times. It was tough not to climb the corporate ladder seeking higher pay and job security or chasing financial fads such as flipping real estate, day trading stocks, gambling on dotcom companies, investing in mutual funds, or using my home as an ATM to pay off my credit cards. Today, many of my fellow baby boomers who enjoyed the boom years are concerned about survival in the lean years.
In 1973, returning from the Vietnam War, I found my dad, in his fifties and in the prime of his life, unemployed. Although a highly educated, honest, hard-working man — and former superintendent of education for the state of Hawaii and Republican Party candidate for Lt. governor of the state – he was sitting at home, looking for work. My dad’s situation, combined with my experience of the war, was my wake-up call. I knew something was wrong, but I did not know what was wrong.
The stories of the pharaoh and the three little pigs danced in my head. I knew I had to prepare, but for what I did not know. I just knew I could not follow my dad’s advice, which was to fly for the airlines or go back to school and get my PhD. My instincts, sharpened by the war, knew his advice was not right for me. I decided to follow in my rich dad’s footsteps, not my poor dad’s.
One Path to Take
The following are some of the steps I took to prepare for the worst. I do not recommend my path; I will simply state why I did what I did and what benefits were gained.
1. I became an entrepreneur, not an employee. This was a tough choice. I did not have the skills, experience, or financial backing to support me through the lean years and my mistakes…and there were many lean years and mistakes. Many of the businesses I started failed.
Thirty-six years later, I own a number of businesses and employ hundreds of people all over the world. Some of the benefits: A) I make more money and pay less in taxes because I provide jobs, and that is what this economy needs — more jobs. When President Obama speaks about raising taxes on the rich, he speaks about high-income employees and small business owners, not entrepreneurs who build big businesses. As you know today, many big businesses are doing better as small businesses crumble. B) I can start new businesses as the economy changes and new opportunities appear. C) I can start businesses in different countries when new opportunities appear. D) I am not afraid of losing my job. E) My income goes up as my business grows.
The good news is that it is easier to be an entrepreneur today. The Web and new technology offer more opportunities to reach a world market at a lower price. Today a person can start a business at home and reach the world market.
2. I invest for cash flow, not capital gains. Most people invest for capital gains. These are the people who have lost a lot of money or are afraid of losing more money. When a person says, “My house has appreciated in value” or “The stock market is going up,” they are investing for capital gains. Investing for capital gains is like building a house of straw or sticks.
In 1973 I took a real estate course to learn how to invest for cash flow. Even though the real estate market crashed in 2007, my rental properties continue to produce cash flow. Even though banks are not lending money to many homeowners, the government continues to loan millions, via the FHA, to investors who provide housing. This means we receive tax breaks and use debt — other people’s money — to increase income.
The good news is, when prices crash, cash flow investments become more affordable. For example, stocks such as Johnson & Johnson, a company that pays a steady dividend (cash flow), become more affordable. If you want to start your real estate career, now is the time to invest for cash flow.
3. I invest for inflation. In 1971 President Nixon took the world off the gold standard, which means the world’s central banks can print as much money as they want. I was in Vietnam in 1972 and saw what happens when people do not trust paper money. Rather than try to live below my means and save money, I invest in gold, silver, and oil — commodities that go up in price as the government prints more money.
When investing for inflation, I am not investing for cash flow. In this case, I am investing to protect my wealth from the predatory practices of the Federal Reserve Bank, the U.S. Treasury, and the ultra rich manipulating the world economy.
China does not trust the U.S. dollar. Today China is using U.S. dollars to buy commodities such as oil, copper, gold, and silver. The good news is silver is still inexpensive. In 2007 gold was approximately 50 times more expensive than silver. In 2009 the gap is 70 times — which means silver is a bargain.
Silver is used in the electronics industry and is consumed daily; stock piles of silver are dwindling. On top of that, for the first time in modern history, there is more gold in the world than silver. In other words, silver is more valuable than gold. The good news is, at less than $20 an ounce, almost anyone can afford to start preparing for the worst and building their own house of silver.
In conclusion: My mom and dad lived through the last depression. They knew lean years. The baby boom generation is about to have their fat cows eaten by skinny cows. The good news is, if you can thrive when times are bad, these are the best of times
http://finance.yahoo.com/print/expert/article/richricher/192575
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Interest Outlook November 2009
November 12, 2009Interest Rate Outlook Last week we saw the Reserve Bank keep the Official Cash Rate unchanged at 2.5% as was widely predicted across the market. Governor, Allan Bollard went to lengths to reiterate that he intends to try and keep the cash rate at this level until late in 2010 despite many bank economists predicting that he will move earlier than that, perhaps in the second quarter of next year.
The mortgage rate curve continues to get steeper and it is not hard to see this trend continuing with people who want certainty in their interest rate paying a premium for the privilege.
Borrowers who are coming off rates they fixed 2 years ago will pleasantly find substantial savings as they look at current variable to 1 year fixed money, as will borrowers who fixed their rates a year ago, the above groups of consumers are going to come down from rates at 9.10% & 8.20% respectively saving them plenty.
The housing market is currently enjoying strong growth in prices as a continued shortage of stock combined with the low borrowing costs that still exist at the short end of interest rates push prices upward which will be a concern to the Reserve Bank as the last thing the economy needs is a recovery driven by a further increase in household debt which is still too high from the last growth cycle.
After a string of five consecutive quarters of rolling backwards, the economy finally kicked into gear last quarter with a very small measure of growth, none the less it was growth and the first measure of improvement since mid 2008. The two major areas of concern for the government to focus on going forward is managing the continued increase in unemployment rates which are predicted to top 7% in 2010 and the spiralling value of our dollar which is crippling our important export market. The table legs of the economy cannot continue to carry the weight of the spiralling dollar which could force an earlier than wanted increase in the cash rate as above economists predict.
In this current environment though we can still not see any value in longer term fixed rates with even 2 year rates now sitting @ 7%. As such our continued recommended borrowing strategy is to sit at anywhere between variable rates and fixing for up to 1 year with consumers being educated to try and keep their payments up to a level as if interest rates were at 7% allowing them to pay off more of their principal faster so when rates do increase in 2010 & 2011 to this level they are already attuned to it and ahead in their term.
Deal of the Month
Construction loans can be tricky, particularly when the owner is a builder and looking to complete some of the work themselves. Last month a young couple came to us as they had been progressively renovating their home, they had it 90% complete but needed some funding to fully complete and realise the property’s value. After an updated valuation was completed on an ‘as is’ basis and a fully complete basis we managed to refinance them & obtain a working facility to allow them to complete their project – We deliver!
We negotiated a spectacular deal for a Kiwi Bank client with another lender. The result for the client: A 1 year rate of 5.29%, waver of application fee and several hundreds of dollars legal fee contribution. The best deals are NOT advertised.
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Current Interest Rates |
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Rates offered are the best of standard, carded interest rates available and do not reflect any discounts your Advisor may be able to obtain for your client. Rates correct as at 01/11/09. |
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Variable |
5.75% |
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6 Month Fixed |
5.39% |
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1 Year Fixed |
5.85% |
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2 Year Fixed |
6.99% |
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3 Year Fixed |
7.69% |
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5 Year Fixed |
8.60% |
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Message from Keith
November 12, 2009Success is the result of judgment, which comes from experience, which comes from mistakes, which comes from action. Nothing happens until you take action.
Take some action today!
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Interest Rate Outlook September 2009
September 1, 2009Interest Rate Outlook Daniel Feller
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Has the bungee cord really kicked in? There certainly is a lot more confidence about at present and nothing leads us out of a recessionary environment better than consumer confidence.
We are not sure though and believe that our economic recovery is going to be a long and steady one (which will be for the betterment of all) rather than the bungee pulling us straight back up.
However, neither is the recent strong housing sales results a ‘dead cat’ bounce but we do need to remember that while we are seeing seasonally adjusted house sales volumes up just under 5% in July and over 34% on a year ago (the highest since November 2007) they are coming back from the massive lows of 2008.
Migration continues to be kind to our economy as well with another strong inflow in July of over 1500 people putting us at an annualised increase in population over the past 3 months of over 20,000. This certainly will assist in keeping housing demand up and drive a recovery. Again we stress this is being driven more by Kiwi’s staying put or returning home than a massive influx of new people to god’s own.
Of course the benefits of lower interest rates are also helping with the real advantage now starting to be felt across the country as consumers come off their previous 2 or 3 year fixed rates, a good 2-3 % higher than what they are able to re fix in for now. This freeing up of cash flow will assist to keep the confidence flowing through to our economy.
Of course the big hand brake in our recovery continues to be the pressure on unemployment rates which we saw increase from 5 to 6 percent in the June quarter. This is a big increase in a 3 month period and it is this uncertainty of jobs that is holding Mum’s & Dad’s back from taking ANY risks.
We have not moved away from our recommended borrowing strategy from last month, the real value still appears to be in the short term fixed rates of 6 months or 1 year which continue to sit around the 5.50% mark. Of course rates will not stay down at this level forever but we certainly feel this is a better option than locking on for the longer rates currently on offer in the 3-5 year bracket. While rates will go up over time it is unlikely that they will increase at such a rate that they will see you overall being penalised later for taking advantage of sharper rates now. One strategy we favour is keeping your payments at their previous high rate but locking in at the low 5.50% on offer, dramatically shortening the term of your mortgage.
What’s Hot
In these uncertain times we have more and more of our clients asking to have mortgage repayment insurance added to their loan to provide them with protection if something untoward was to happen to them. We have a full range of Insurers and products to provide this cover – Help your clients, refer them to us!
Deal of the Month
Borrowers with adverse credit are harder to set in today’s environment than in previous years but if you know the way around the criteria we can still get these deals set. Last month we helped a couple restructure their contract to remove one partner and got them into their first home in the remaining applicant’s name supported by a legal agreement protecting the removed partner’s interests – We deliver!
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Keith Cunningham Summer Reading List
August 24, 2009Below an interesting reading list for the coming summer.
The only thing worse than not being able to read, is being able to read and not doing it. Mastery is a never ending quest for knowledge and wisdom. Below are a few of the books that we have been reading this summer….. ENJOY!
Outliers: The Story of Success – By Malcolm Gladwell, Nov 2008
Manias, Panics and Crashes – A History of Financial Crises – By Charles P. Kindleberger, Robert Aliber, and Robert Solow, Oct 2005
Oh the Places You’ll Go – By Dr Seuss, Apr 1993
Reinvention: How to Make the Rest of Your Life the Best of Your Life - By Brian Tracy, Jan 2009
Where Have All the Leaders Gone? - By Lee Iacocca, Apr 2008
Training Camp: What the Best Do Better Than Everyone Else – By John Gordon, May 2009
Chasing Daylight: How My Forthcoming Death Transformed My Life – By Eugene O’Kelly, Sep 2007
Hand Book for Revolutionaries – By Noel Tichy, 1993
The 5 Competitive Forces That Shape Strategy – By Michael E. Porter, Mar 2009
The Fifth Discipline Fieldbook and the Dance of Change - By Peter Senge, Sep 2000
Selling the Invisible: A Field Guide to Modern Marketing – By Harry Beckwith, Mar 1997
Zag – By Marty Neumeier, Sep 2006
The Purple Cow – By Seth Godin, May 2003
Financial Intelligence – By Karen Berman, Joe Knight, and John Case, Jan 2006
The 5 Dysfunctions of Team – By Patrick M. Lencioni, Apr 2002
Growing a Business - By Paul Hawken, Oct 1988
Little Red Book of Selling – By Jeffrey Gitomer, Sep 2004
Secrets of Closing the Sale – By Zig Ziglar, Oct 2004
The 100 Best Business Books of all Time – By Jack Covert, Feb 2009
Flow: The Psychology of Optimal Experience – By Mihaly Csikszentmihalyi, Jul 2008
Finding Flow: The Psychology of Engagement with Everyday Life – By Mihaly Csikszentmihalyi, April 1998
Relaxation Response – By M.D. Herbert Benson and Miriam Z. Klipper, Feb 2000
Thank God It’s Monday – By Roxanne Emmerich, April 2009
With Winning in Mind – By Lanny R. Bassham, Nov 1996
Entrepreneur and Small Business Problem Solver – By William A. Cohen PhD, Dec 2005
How We Decide – By Jonah Lehrer, Feb 2009
Mistakes Were Made (But Not by Me): Why We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts – By Elliot Aronson and Carol Tavris, Jan 2007
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Banking complaints
August 16, 2009
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Surge in insurance against job loss
August 10, 2009Nearly a quarter of Kiwis have income-protection policies. If you don’t have income protection or would like to review your insurance cover contact me anytime on 09 529 1115.
Economic hard times are driving significantly more New Zealanders to take out income-protection insurance, a new survey reveals.
AIG Life’s biennial Life Matters survey of 1000 Kiwis shows that 23 per cent have income-protection insurance, up from just 13 per cent two years ago.
It found a similar rise in trauma and critical illness insurance – 31 per cent of those surveyed have this protection, compared with 15 per cent in 2007 and 9 per cent in 2005.
The findings echo figures from the Investment Savings and Insurance Association showing that premiums collected from risk insurance products increased by 11.4 per cent in the year to March.
Mike Loftus, head of marketing for AIG Life, said New Zealanders had clearly become acutely aware of risk as the economy declined.
He said those surveyed rated redundancy as their major concern at present, ahead of any health risks.
However most insurers did not cover redundancy as part of their income-protection products, but rather as a component of mortgage protection insurance, he said.
This was because redundancy cover could become self-selecting, with those most at risk more likely to take it out.
AIG Life had also seen a rise in small business owners taking out key person insurance, he said.
“If they’re unable to continue working in their business, then the business is at risk of falling over, especially with the banks being quite tight on credit.”
Ralph Stewart, chief executive of rival insurer AXA, confirmed the flight to income-protection products.
But he also pointed out that most products did not cover redundancy, and in fact usually had a provision whereby the insurance was cancelled if the person was out of work for a certain time.
Concern about unemployment was making people more aware of the issues relating to sustaining their income, but “is that concern best satisfied by buying more income-protection insurance? No”.
The products could be complex, with a menu of options such as different stand-down periods and the nature of the medical conditions covered. “Clearly it’s a product that needs some advice wrapped around it.”
New Zealand Financial Planning adviser Greg Moyle said income-protection insurance should be considered as part of a comprehensive financial plan.
He had seen instances of it being oversold.
“The concern I might have is that people can sometimes be frightened into overinsuring and it can be expensive.”
If a person was so sick they could not work, their lifestyle would change dramatically and so therefore would their need for funds.
“How much do you really need, and that needs to be revised every few years as well.”
He said people should go for at least a 90-day stand-down period to reduce costs, and look into whether the product was tax deductible.
Source http://www.nzherald.co.nz/surviving-the-recession/news/article.cfm?c_id=1502812&objectid=10588257
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Interest Rate Outlook August 2009
August 3, 2009Interest Rate Outlook August 2009
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After a period of extended weakness the economy could be set for a rebound late in 2009 and through to 2010 as the country begins to prepare for the 2011 Rugby World Cup, although be prepared for a slow and gradual climb out of the fairly large hole we currently find ourselves in.
Make no mistake the country is still in recession but there are plenty of promising signs, this growth potential is being held down by a rapidly rising unemployment rate and while reduced mortgages rates and tax cuts have certainly helped our pockets, consumer spending remains very subdued as people warily eye their finances.
A stable base for growth is forming, house sales are up 50% from their lows as astute buyers respond to lower interest rates and strong investment yields now available, however still remain 30% lower than the highs of previous years. We expect this momentum to continue for the balance of the year and indeed accelerate slowly as building consents recover from the cellar they are currently in.
There is widespread talk of a shortage of housing which is the justification for house prices increasing. We are not so sure, while there are less houses on the market there is certainly no shortage of vacant land (outside of Auckland) which would drive prices up, as such while property in congested residential areas will see some gradual growth we still feel that the unwind of a lot of speculative land purchases during the last boom will see land prices remain flat for some time.
Aggressive competition for deposits by banks is keeping pressure on long term borrowing rates as banks look to get more long term money on their books. As such we believe that long term 3-5 year rates will continue to remain a good 1.5% above the attractively priced 6 month and 1 year rates. As such our recommended borrowing strategy is still to consider the 6 month or 1 year fixed rates as being of the best value. The challenge for consumers is to decide whether to roll every 6 months or fix for 1 year which is similarly priced but does not give you as much flexibility if you decide you want to fix for longer in the future. We recommend 6 months as the better option and let us take care of the hassle of re fixing for you!
What’s Hot
We now have 2 mainstream lenders back in the game lending above 80% LVR’s the good thing about that is that it allows us to offer a choice of taking the very sharpest interest rate and paying a one off Lenders Mortgage Insurance (LMI) Premium or paying no LMI and having the interest rate loaded by 0.35% – 0.50% depending on the LVR of the loan. – Help your clients, refer them to us!
Deal of the Month
We continue to be leading the market in assisting first home buyers, this month we has a borrower who had been retrenched form his job, found a new job in the same industry so we were able to use his redundancy payment as his 5% deposit on a house and fund the balance through one of our 95% lenders who were fine with the borrower as he displayed continuity of employment even though just in a new job.
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