KEY POINTS:
Lower fuel and commodity prices
Petrol and diesel prices have crashed more than 30 per cent since hitting a record high in July.
Lower demand from China and the United States has sucked the crude oil price from a peak of almost US$150 a barrel midway through
the year to under US$50 a barrel in the past week.
Less demand from hedge funds for commodities has also helped drag prices down. Many hedge funds are evaporating under a welter of withdrawals from wealthy investors burned by the collapse of stock markets and investment banks.
The biggest winners will be consumers who depend on fuel-hungry transport, and businesses and farmers who use petrol and diesel a lot. Lower oil prices also have spin-off benefits for many.
Fertiliser prices will fall, reducing costs for farmers, while lower jet fuel prices will make long-haul travel more attractive to tourists.
Tourism operators should benefit from foreign and domestic travellers finding it cheaper to go on holiday.
Lower fuel prices eventually cascade through the economy in the form of lower food and distribution costs as couriers, transport companies and vegetable growers are able to cut their prices.
Lower interest rates
Heavy borrowers have struggled during the past year as average mortgage rates have risen to more than 9 per cent.
But the prospect of the official cash rate (OCR) dropping to 4 per cent or below and signs of deflationary pressures globally have seen mortgage rates drop to less than 7 per cent in some cases.
Existing borrowers will benefit most because even though rates have dropped, access to new debt will become much more restricted.
New home buyers looking to borrow more than 80 per cent of the value of their home, or those looking to "top up" mortgages through equity release or revolving credit mortgages, will struggle to get fresh debt cheaply.
Savers will not find lower rates a silver lining.
Term deposit rates are falling fast in anticipation of a 100 basis point cut in the OCR on Thursday.
The introduction of the deposit guarantee scheme has given some relief for savers seeking a better return than the 6 per cent or less available from most banks.
Guaranteed finance companies are still offering 9 per cent or higher - for 22 months before the scheme expires.
A lower New Zealand dollar
The Kiwi dollar's slump from almost US80c early in this year to as low as US52c last week will boost export returns substantially, although some of the icing has been taken off the cake by a sharp fall in dairy commodity and meat prices in US dollar terms in the last three months.
Tourism operators should benefit from higher foreign tourist numbers and domestic tourists as New Zealand becomes more attractive from both points of view.
The weaker currency will increase import costs and reduce the size of our trade and current account deficits, reducing our debt burden eventually, which is good news from our credit rating point of view but not so good news from that of importers of non-essential consumer goods.
Better housing affordability
Lower house prices and falling interest rates are improving housing affordability, particularly for buyers of first homes.
The Wizard Home Loans affordability report shows the portion of after-tax median income needed to service an 80 per cent mortgage on the median house has improved to less than 70 per cent from more than 82 per cent since late last year because of tumbling house prices and lower interest rates.
There will be more improvement to come as house prices continue to fall, but there also needs to be. Housing will not be affordable again for most until that mortgage servicing portion drops below 50 per cent.
Bargain hunting opportunities
There's never been a better time to be a cashed-up buyer of property and other distressed assets or consumer goods. Stressed developers, retailers with too much stock, car dealers going out of business, mortgagee sellers and desperately stretched rental property investors will be vulnerable to low offers from cash buyers.
Value investors love this type of market and buyers with a ruthless streak are in a great position to buy cheap houses, cars, clothes, televisions and apartments.
But be careful to avoid overpaying. My pick is prices of overpriced assets, such as coastal property and apartments, need to start with a baseline offer of 30 per cent under the peak price at the end of last year.
Bernard Hickey is the managing editor of www.interest.co.nz, a website for investors and borrowers wanting free and independent news and information about interest rates, banks, finance companies and the economy.