| Welcome to the May Issue of the Dashboard Newsletter. As we near the official end of autumn, the weather remains unseasonably settled for this time of year. So I wasn't too surprised when we got a couple of stormy blasts over the past 30 days to remind us that winter is drawing ever closer. It definitely has been a golden summer, but I fancy it's on its very last legs now...
The last 30 days have been reasonably settled without much news flow too. There seems to be an eerie calm in the markets – perhaps some complacency even. The only development that seemed slightly unexpected was the Reserve Bank of Australia cutting their interest rate to a record low of 1.75% earlier this month. This puts a bit of pressure on the Reserve Bank of New Zealand who meet again on 9 June, and the expectation now is that they will reduce our rates by a further 0.25% to 2.00%. This was reflected in our dollar with the exchange rate against the US$ and GBP falling markedly since the Australian rate cut. This latest Australian rate cut means that you can now get a 2 year fixed mortgage rate for under 4% in Australia. (We're not too far behind that in New Zealand). That is incredibly cheap money. The challenge for first home buyers today is rising house prices and getting a deposit together. A generation ago (in the early 1990's), the challenge for first home buyers was the fact that they were faced with 18% to 20% interest rates. To put that into context – that's like buying a house on your credit card today. Interest rates then where equally as crippling as house prices are today. The fact is that servicing a mortgage has never been easy, and probably never will be. I find this concept interesting though – the fact that home ownership is all about the ability to service a mortgage. It is a combination of the price of the home and the interest rate charged – rather than either of these in isolation. A generation ago, the bulk of your monthly mortgage payment was going towards paying for the interest cost – so the entity benefiting by the high repayment was the entity charging the interest (usually the bank). Wealth was being transferred from the buyer to the lending institution. Now with low interest rates, most of your monthly mortgage payment is as a result of the value of the house – an asset the buyer will eventually own. In theory less wealth is being transferred to the lender, and more retained by the buyer. My concern is that when you step back, you notice that the interest rate trend over the past 10 years has been a steady downward slope. At some point, it is reasonable to assume that rates will start to increase again (although this seems some time away still) and there will be a reversion back to the norm – a cycle that may take a decade or so. Under these circumstances, the ability to service a mortgage becomes more challenging. So of the 2 levers (price and interest rate) the one that has to off-set the rate increase should in theory be the price. Given the above, it's not surprising then that the national average house price in New Zealand is currently at a record high of $568,058 according to QV (record low interest rate should equal record high value, right?). This is a gross oversimplification of a very complex issue, and there are many other contributing factors (real inflation, wage inflation, migration, building regulations, the list goes on). But it does highlight some challenges that home buyers (whether first home owners or investors) face today. In recent months there has been plenty of media coverage about the booming property market and I'm finding that anecdotal "property chat" has increased around the BBQ again – so it's a hot topic. Often that's the time to be aware though. I'm not suggesting for a minute that house prices are going to collapse or that you shouldn't buy your first home or invest – I believe that home ownership should be the cornerstone of every financial plan and that property investment can be extremely successful if done well. My point is more to highlight that good opportunities are harder and harder to come by, and I believe that now is a time to exercise caution and prudence. The same principals currently apply in investment markets too. Now is a time to be very selective and considered with your decisions – there are no more rising ships with a rising tide. In terms of the numbers over the past 30 days, markets have been mixed. New Zealand and Australia were the best performing share markets at 0.5% and 3% respectively (Australia helped with the surprise rate cut). Most other share markets were down between 1% and 3%, with Hong Kong being an outlier down 7%. The NZ dollar weakened by just over 1% against the USA dollar and British Pound, which off-set the share market losses for New Zealand investors and left us about flat for the month. Here are the numbers: |
||||||
|
||||||
In terms of your Select Wealth Management investment, you will by now have received all you reports for 31 March (quarterly performance report, annual performance report, tax report and 6 monthly custodian report). It's a lot of paper and we have understandably received plenty of feedback (thank you). We are legally constrained with certain reports that have to be sent, but I take on board your feedback and we will pass it on to the powers that be with a view to make some of this more user friendly. Please also remember that you can receive these electronically, so please take a minute to register for this if you would like. It is a fantastic service. Finally, a quick update about our Save Lily campaign. Lily and her family are now back in Wellington and recovering well. Modern medicine is incredible. Young Lily is well enough now to do ballet – a feat that only a couple of months ago would have seemed impossible. We have 6 more weeks left with this campaign and we are making every effort to finish with a sprint so that we can make as meaningful a contribution as possible to this amazing cause. Check our progress at mifinancialplanning.co.nz/giving-back Thank you to all of you that have referred family and friends who need investment, insurance and financial planning advice – keep them coming. We really appreciate your support. Until next month, warm regards Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
||||||
 |
||||||
This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.