YOUR MORTGAGE: Things are getting a little bit wobbly again, economically

IT'S BEEN another week of turmoil in world markets with latest economic data suggesting a slowing in growth in two countries that have major influences on a global recovery - the United States and China.
It comes on top of continuing negative sentiment in the Eurozone economies - so the sharemarkets have headed "south" again, as have interest rates on the back of decreases in the US.
In New Zealand, we have had mixed economic data but with a negative bias. Retail sale figures were surprisingly good (showed growth), but real estate sales figures were 27 per cent below the figures for the same period last year. A manufacturing survey also suggested weaker sales orders.
Combine that with lower net migration, a strong kiwi dollar and weaker dairy product prices, and things are a little bit wobbly here as well.
Net migration has a major influence on sectors of New Zealand's economy, especially on the housing market. In June that figure was basically break-even, meaning that just as many people arrived in New Zealand as were moving out.
The fact that Australia's economy is far stronger than our's means opportunities for employment (at higher incomes) are far greater than in New Zealand.
More Kiwis are moving to Australia and also Australia is more preferred for migrants coming from other parts of the world. The result is less demand for housing in New Zealand.
Because of the weak economic data, there is a reasonable case for the Reserve Bank to take a pause in increasing the official cash rate (OCR) on September 16. Financial markets are 50/50 on a pause or whether the Reserve will wait until October 28.
I favour a pause in September as I feel that actual conditions are worse than the time-lagged historical market data shows and the last thing the market needs psychologically is another OCR increase - there is the danger of cutting off any recovery at the knees.
Also, with about 70 per cent of mortgages now on a variable rate or fixed less than one year, the Reserve Bank is reasonably reliant on any future OCR increases feeding through quickly to the short-term rates. This would mean that there would be less money available to buy goods and services since short-term rates would rise.
What is a valid interest rate strategy, at present? With the flat or marginally downward pressure on interest rates offshore, there does not yet appear to be a rush to move to a fixed rate. However, for those requiring certainty, I still regard the 18-month and 2-year rates as providing a good mix of relatively low cost.
Personally, I would favour a heavier weighting on the 2-year rate. With the economic recovery likely to take longer than previously expected, the high point in the interest rate cycle should be pushed further back. And the 2-year rate provides certainty for a longer period.
Brian Berry is a director of Rothbury Financial Services, based in Tauranga. He can be contacted on: phone 0800 33 34 35, fax 07-5790666 or email brian@rothbury.net.nz