Roost Home Loan Affordability Report shows worsening in August as median house price rises; competition between banks heating up as ANZ drops National brand

By Bernard Hickey

Home loan affordability worsened slightly in August as the national median house price rose again to near a record high, more than offsetting record low interest rates.

Competition between banks to poach market share and boost lending has heated up in recent weeks. ANZ’s decision to drop the National Bank brand has sparked a new round of fixed mortgage rate cuts and market activity.

The Roost Home Loan Affordability monthly reports show affordability for young working couples is still near its best levels in almost eight years, although affordability for home buyers in central Auckland, Wellington and Christchurch remains difficult. See the full standard Roost Home Loan Affordability reports here and the First Home Buyer Affordability reports here.

Some banks have cut fixed mortgage rates to under 5% and are offering discounted legal fees, lower interest rates for borrowers with high equity and, in some cases, the discounting of break fees. Pricing is often differentiated, depending on the safety of the borrower and the size of the loan.

“Banks are increasingly picking and choosing different deals for different customers, rather than taking a one-size fits all approach,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from Interest.co.nz.

“The increased complexity and level of competition means a borrower can often get the best deal with advice and help from a broker,” Dennehy said.

Financial markets are now expecting the Official Cash Rate to be flat at 2.5% over the next year to 18 months. Economists see the OCR rising from late 2013 to a peak of 4% over the next couple of years.

Affordability worsened slightly nationally in August as the median house price for all of New Zealand rose to NZ$370,000 from NZ$361,000 in July. It is just below the record high NZ$372,000 set in June. This raised the proportion of single after tax income needed to service an 80% mortgage on a median house to 53.5% from 52.3% in July, the Roost Home Loan Affordability report shows.

Household affordability for first home buyers deteriorated to 21.5% of income from 21.4% the previous month, but remains around its best levels since late 2004. First home buyer household affordability is measured by calculating the proportion of after tax pay needed by two young median income earners to service an 80% home loan on a first quartile priced house.

Affordability deteriorated for Auckland, Wellington, Nelson/ Marlborough, Canterbury, Central Otago/Lakes and Southland because of higher median house prices, while affordability improved in Manawatu/Wanganui and Otago due to lower median prices. See the main report for links to regional reports.

The Roost Home Loan Affordability report measures affordability nationally and regionally for individual income earners and households, taking into account median house prices, interest rates and incomes in their regions and cities. Affordability has generally been improving since December 2009 as house prices have flattened out and interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again. Around 60% of home owners are now on floating mortgages, although there has been a surge in fixed rate borrowing in recent months as banks pared their rates.

Advertised floating rates at around 5.75% are higher than 1 year fixed rates at around 5%, but many banks are offering ‘unofficial’ floating rates of around 5.3% to solid customers with high levels of equity that threaten to leave their bank. The Home Loan Affordability reports use the advertised floating rate. Affordability for households with more than one income worsened slightly in August because of the higher median house price.

This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house rose to 53.5% from 52.3% in June. This measure assumes one median male income; half a median female income aged 30-35 and a 5-year-old child that receives Working-for-Families benefits.

Any level over 40% is considered unaffordable for a household, whereas any level closer to 30% has coincided with increased buyer demand in the past. The first home buyer household measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

Regional home loan affordability comparison:      
mortgage payment as a % of weekly take-home pay      
 
Aug-12
Jul-12
Aug-11
Aug-10
Aug-09
Aug-08
New Zealand
53.5%
52.3%
52.7%
60.9%
58.7%
73.4%
Northland
47.0%
46.6%
49.4%
59.7%
55.4%
69.4%
- Whangarei
40.6%
41.0%
40.6%
54.2%
45.8%
63.0%
Auckland
69.5%
68.9%
63.9%
73.3%
72.1%
88.3%
- Central
78.1%
74.7%
64.3%
81.6%
79.6%
91.5%
- North Shore
76.8%
75.6%
70.1%
79.1%
79.2%
97.0%
- South
71.1%
67.3%
68.0%
75.6%
74.2%
88.1%
- West
59.7%
59.9%
56.4%
64.4%
62.4%
76.1%
Waikato/BOP
46.8%
46.9%
50.5%
60.1%
57.6%
74.5%
- Hamilton
50.8%
52.3%
52.8%
62.6%
61.3%
76.7%
- Tauranga
52.5%
57.4%
58.5%
68.2%
64.0%
80.0%
- Rotorua
38.9%
42.6%
32.1%
53.4%
46.8%
63.9%
Hawkes Bay
41.0%
43.5%
41.5%
53.9%
48.4%
65.9%
- Napier
44.1%
45.8%
46.0%
60.6%
51.0%
68.5%
- Hastings
43.0%
42.0%
41.0%
53.3%
48.7%
60.5%
- Gisborne
35.7%
34.0%
42.4%
47.6%
59.1%
77.2%
Manawatu/Wanganui
33.1%
34.6%
34.8%
43.0%
38.8%
55.9%
- Palmerston North
41.3%
39.9%
39.5%
45.1%
43.2%
58.0%
- Wanganui
29.2%
27.0%
27.9%
43.8%
35.7%
45.5%
Taranaki
42.9%
40.1%
42.7%
49.2%
53.1%
60.5%
- New Plymouth
51.0%
47.1%
47.4%
62.0%
60.5%
71.9%
Wellington region
51.2%
48.8%
50.0%
64.0%
61.8%
77.1%
- City
56.0%
56.2%
56.1%
66.0%
71.3%
78.2%
- Hutt Valley
45.1%
45.3%
43.5%
55.5%
50.6%
64.3%
- Porirua
49.9%
52.6%
58.8%
69.5%
74.1%
79.3%
- Kapiti Coast
47.0%
48.4%
50.7%
64.2%
54.3%
64.1%
Nelson/Marlborough
51.9%
47.5%
51.9%
63.3%
60.9%
80.1%
- Nelson
51.2%
55.2%
50.9%
63.3%
57.2%
78.4%
Canterbury/Westland
51.5%
50.1%
49.8%
57.0%
51.7%
66.6%
- Christchurch
56.4%
55.6%
54.3%
62.9%
57.5%
72.8%
- Timaru
40.4%
44.5%
38.1%
40.0%
45.0%
59.8%
Central Otago Lakes
67.7%
66.7%
71.1%
85.4%
80.2%
111.7%
- Queenstown
73.2%
89.6%
80.9%
97.8%
93.4%
114.6%
Otago
35.8%
39.1%
39.4%
43.7%
43.5%
55.3%
- Dunedin
40.9%
43.5%
45.6%
50.0%
52.2%
62.6%
Southland
30.2%
28.6%
31.5%
36.2%
36.3%
46.1%
- Invercargill
32.1%
30.8%
34.6%
41.2%
40.1%
47.3%

Full regional reports are available below:
- New Zealand (159kb .pdf)
- Northland (159kb .pdf)
    - Whangarei (159kb .pdf)
- Auckland region (159kb .pdf)
    - Auckland Central (159kb .pdf)
    - Auckland North Shore (159kb .pdf)
    - Auckland South(159kb .pdf)
    - Auckland West(159kb .pdf)
- Waikato and Bay of Plenty (159kb .pdf)
    - Hamilton (159kb .pdf)
    - Tauranga (159kb .pdf)
    - Rotorua (159kb .pdf)
- Hawkes Bay and Gisborne (159kb .pdf)
    - Napier (159kb .pdf)
    - Hastings (159kb .pdf)
    - Gisborne (159kb .pdf)
- Taranaki (159kb .pdf)
    - New Plymouth (159kb .pdf)
- Manawatu and Wanganui(159kb .pdf)
    - Palmerston North(159kb .pdf)
    - Wanganui(159kb .pdf)
- Wellington region (159kb .pdf)
    - Wellington City (159kb .pdf)
    - Wellington Hutt Valley(159kb .pdf)
    - Porirua (159kb .pdf)
    - Kapiti Coast (159kb .pdf)
- Nelson and Marlborough (159kb .pdf)
    - Nelson (159kb .pdf)
- Canterbury (156kb .pdf)
    - Christchurch (156kb .pdf)
    - Timaru (156kb .pdf)
- Central Otago Lakes (159kb .pdf)
    - Queenstown (159kb .pdf)
- Otago (159kb .pdf)
    - Dunedin (159kb .pdf)
- Southland (159kb .pdf)
    - Invercargill (159kb .pdf)

 

(r) = Revised, following Statistics NZ LEEDS database update.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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24 Comments

Yet 31% of texas homes are supposed to be under water, that isnt "normal" in my book.
Yet they were free of building constraints....and US house prices are supposed to be 30~40% down from their peak....yet 31% still under water?
Cant see much evidence how build anywhere helped much.
regards
 

Maybe you should watch homes from hell on TV, hightlights the very best of cowboy developers, builders and no inspections....
Like the 20m+ high wall only 200mm thick, no foundations...just laid on the earth holding back tonnes of earth...or the literally throw re-inforcing into the mold....lethal...
regards

Hugh P should do some learning.
 
Kim Hill is interviewing Richard Heinberg this morning.
 
Neither are ignorant enough to think that bleating "Malthusian" makes reality go away.
 
Might be worth the listen...........
 
:)

Hugh P would do more better learning when Kim Hill interviews Daniel Yergin sometime ....
 
..... unless you seriously believe " Peak Everything " ..... oh crap , you do , that's your Malthusian bible !  ..... Heinberg hates profits & progress ..... hates businesses .... hates right of centre politicians & right of centre political parties .....
 
Heinberg actually appears to want to see the world come to a firey apocalyptic end , he appears to delight in the prospect of riots , famines and wars ...... the guy is a sick unit !

Hugh
My workmates who own houses in Adelaide and Melbourne are worried about house prices. I reassure them that Aus is like NZ 2 years ago prior to the RBNZ slashing interest rates. The same thing will happen here in Aus, and that will prevent any further significant falls in prices 

I couldnt agree more Hugh, but whilst most don't see a bubble about to burst, the problem for those that do is trying to figure out the timing, and the trigger for the event. All you can do is be patient and take the pain of waiting it out - eventually that patience is hansomely rewarded in a bubble market.

Strange. Over the past 3 years, the "hottest topics" on interest.co.nz have been property related. Yet, have never once seen any examination or discussion of the effect of the "auction method" of selling houses versus the "for sale" method. In my experience of attending auctions, if the real-estate agent can get 3 or more genuinely interested parties into a room together and get some price tension going, by conducting a "sudden death" auction the eventual buyer (if very keen) will have been sucked into an "emotional roller-coaster ride", inevitably paying much more than market price. Sometimes well over the market-price. Yet that sale becomes the bench-mark from that point on.

As a soon to be Auction participant, as a vendor, I'm wary of the process. Only slightly over 50% sell at the Auction so it's no picnic for Vendors either.
That said, if my house does sell, then that is its Market Price on the day. Not sure how you could define it any other way.

why put urself under the pressure then - if you dont like the 50/50 odds and its no picnic etc

Because I can't determine a price to market at. It seems that the market is pricing randomly by suburb, street and house style. Tried to interpolate a price and the agent said, "you do realise we sold X down the street for $Y and you're underselling". Still dislike the process but it has its uses. 

Auction over and house is sold. For those that are statistic lovers these are real world figures.
After close to 10-years of ownership, the house sold for a price representing a 5% annual compounded capital growth. Hardly outrageous and even less so with inflation taken into account. Interestingly, a house I sold in 1987, sold again in 2002 and the annual compound growth was 4.75% over those 15-years.
In terms of market craziness: 2,700 views on Trademe, 30 people through the open homes, leading to three serious bidders and a price that met pre auction expectations. Nothing crazy seen and sold to locals.

This report says Auck prices are up 24.7% on the year - where does that figure come from?
 
 

 

 

Asia Expat: I presume you've attended some auctions already to see how the procedure works. It's a must-do. 
We've been at both ends of auctions recently in Auckland. 
Selling:
1. Had 29 groups through our house the first day it was on the market (a Tuesday)
2. Had an offer for more than our planned reserve price the next day (Wednesday), which we accepted.
3. The planned auction was brought forward to the coming Friday. Nine groups registered and the real estate office was packed with people (only ours and one other property for auction that day). Despite knowing we already had a good offer, Mrs Pythagoras couldn't bear the pressure. I have to say that it was exciting. At least 3 different parties bid. The price went up by another 30K. Sold for around $650K, about 100K more than the CV. All done in 3 days.
Attempt at buying:
1. Saw a small, 3 bedroom, 1 bathroom house in a good suburb, CV $630. We liked it and were prepared to pay (what we thought was) a premium. Decided we would happily pay anything in the 600's. Got preapproval from the bank to pay up to $780K (gulp! Just because the bank will lend you that much, doesn't mean you have to spend it all). Mrs Pythagoras and I decided our absolute max was going to be $713K.
2. Two other parties at the auction. One of them dropped out at about $660. We started bidding against the remaining party.
3. Bidding went up mostly by $1K per bid. I got nervous when it hit $700 (such big bucks for a small house!), but kept going as per plan. Reached our max of $713K and quit. Other party got it for $715. Vendor would have been over the moon, methinks.
In retrospect, I'm quite relieved we lost the auction and didn't buy it for $713K. Huuuuuge amount of money. In the meantime, we're happily renting and putting away lots in savings. We'll wait and see what the market brings.
Good luck with your auction. If it's in Auckland and under $1.5 million, my prediction is that you should have no problem selling.

We're relative Auction newbies. We will set the parameters and let a proxy work on our behalf. We are not going to be conditioned or have similar games played on us.  
The property is definitely well under $1.5 million, but not in the segment you're describing. However, the sales you're recounting are setting the baseline, like a tide that lifts all boats. 
Personally, I think the market is a bit crazy, fueled by cheap money, which is why we're reverting to one property. That said, we will never sell the remaining one. We've seen too many people try to time the market. In downturns it just goes quiet. This is not like buying generic products on Trademe. 
Good luck with your buying plan. Been there done that. It's never easy, but don't forget you're selling and buying on the same market. You're ahead of the people chasing their first home..

Fresh house hunter couple, back from London. Have a great deposit and bank has said we can have a rediculous loan. Went house shopping over this weekend, wow, huge wow. Lots of people looking 50/50 locals vs immigrants. Heard one local mutter to his wife that he was going to deal to the next ........ (word for immigrant that's not right to post) who outbid them at an auction. Next open home, lots of our over seas friends. Little supply on the market. Think we will be living at Mum and Dad's for a long time. Dam it! Back in NZ home ownership dream on hold and a little depressed! 

I've stopped looking for rentals in AKLD at the moment, everything is for sale by auction and every auction is FULL of emotion....fear and greed is running the market. Put simply: at the moment in Akld demand is outstripping supply and EVERY person who is outbid at auction is getting more and more desperate and wanting to win the next auction, so willing to pay higher......and on it goes, banks stoking it with the next round of interest rate cuts ;)

Well it looks like lower for longer...if the Fed says 2015 or later I cant see ours going up much.....
 
regards

The day they do, will be the death of the US dollar.

Try this DC, take your 'great deposit' and go back to the bank and tell them you want to do something productive, like starting a buisness, wonder if they will give you a  'rediculous loan'  then.   Probably not

DC, you're in the same boat as I, only I haven't just returned from overseas. I'll be waiting a while longer or moving out of Auckland, one of the two. Ain't no way I'm buying in Auckland in the current market!

All this is so much hot air to our young NZ folk.  There is nothing practical that they can do to change things here.  There is only one thing that they can do to change their situation and that is get the hell out of New Zealand.

Here are some of the reasons against high house prices:

  • More money is flowing out of NZ to the AU owned banks increasing the deficit
  • The young can't afford to buy and move overseas or delay having a families / have less children. This will lower tax take in future years making super and healthcare more difficult to pay
  • Everyone pays more in interest. Imagine what you could do with the money if your mortgage was half what it is now.
  • More money would be available to invest in productive assets and businesses leading to greater incomes
  • Social mobility is reduced as house selling costs are too high (note that real estate agent fees have stayed at the same % even as prices have trebled)
  • Financial stress is increased as mortgages take longer to pay off
  • It raises the rental rates so those most at risk struggle to find shelter (or the government has to subsidise them so you pay more tax)
  • It pushes up the costs of a business which operate from a premise that could be used for residential housing e.g. childcare
  • Less houses are built which means house building costs increase
  • People spend less on maintaning and improving their houses
  • People don't trade down to a smaller property for fear of never being able to trade up again

 
 

Govt plans cheaper housing....utter garbage...(a boom in affordable houses.) http://www.stuff.co.nz/sunday-star-times/latest-edition/7779834/Govt-plan-means-cheaper-housing
Anyone expecting a less costly new house to result from the dithering fools on this committee needs to see a doctor.
Cheap sections maybe...you will get what you pay the bank for if you are dumb enough to sign up.
Think remote small isolated and deserted....tomorrows slums.
The skyhigh building costs result from the regulatory madness that demands an insane amount of 'stuff' now be gun nailed and stuffed into a new house with gst slapped on top. That is why so many have said "stuff that for a joke" and walked away from wanting a new house....in fact the 'new house' dream is now the 'new nightmare for life'
On top of the 'stuff rules' we have the LBP madness that allows the DIY to paint the skirting boards and nothing else. So you are forced to work for a lifetime to feed the parasitic bank that pulled credit out of thin air to fund not only your new house and section but all the gst on top....
Any younger gen Kiwi taking on a mortgage to finance a new house must be financially silly.

The flexible plans that the banks have come up with are a very good implementation. They are able to attract more clients while allowing them to settle their monthly financial commitment without much trouble. The banks also need to be prepared to compete harshly with on another by introducing relatively low interest rates, aggressive mortgage loan plans and many other measures that are bound to attract clients. I hope all in all, the main party to benefit from this issue in the financial market, will eventually be the borrower who will get to enjoy affordable mortgage plans.