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Fix for a year, rates heading lower

Tuesday 30th September 2008

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Property investors should fix their mortgages for no longer than a year, as interest rates extend their downward slide, according to ANZ Bank's Property Focus.

The bank's property gauges are a mixed bag in the latest month. Housing affordability is starting to improve as prices fall and mortgage borrowing becomes cheaper though it still has a way to go, according to the September edition of the report.

Migration, a source of housing demand, and supply-demand balance are treading water. On a global view, New Zealand property prices are not that cheap though they're coming down.

Reserve Bank Governor Alan Bollard is set to lower the official cash rate by 50 basis points to 7% next month, ANZ predicts.

Figures today showed home-building approvals fell to a 22-year low in August, reflecting an economy that probably in its third quarter of contraction.

"A patchy period of economic growth can be expected as the economic drivers switch from the spending to the earning side of the economy and the economy continues to rebalance," ANZ's economists said.

"The credit related economic slowdown that began in the US has spread to other corners of the globe and this presents a key risk for the New Zealand economy," the bank said.

New Zealand's economy may have contracted 0.5% in the third quarter, according to the Bank of New Zealand, extending the first recession since 1998.

By Jonathan Underhill

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