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Home loan affordability worst since December 2010 as house prices surge

Posted in Property
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By Bernard Hickey

Home loan affordability deteriorated to the worst since late 2010 in November as house prices surged to record highs and average interest rates edged only marginally lower, the Roost Home Loan Affordability reports show.

A sharp increase in Spring house buying activity and shortages of supply in Auckland lifted the median house price to a record high NZ$383,250 in November, up 4.3% from a year ago.

Auckland’s median house price jumped to a record high NZ$540,000, up 10.2% from a year ago.

Advertised floating mortgage rates have been unchanged since March last year, but average 6 month and 1 year mortgage rates edged 9 basis points and 3 basis points lower respectively over the month.

This helped reduce interest costs for fixed rate borrowers, but not enough to improve overall affordability once the impact of higher house prices and marginal income growth is accounted for.

Competition between banks to poach market share and boost lending heated up in September and October. 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 has deteriorated in the last month.

Affordability for home buyers in central Auckland, central Wellington and Christchurch remains difficult.

“Spring has definitely sprung in the housing market and both banks and mortgage brokers are busier than they have been in years,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from interest.co.nz.

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.

The Official Cash Rate (OCR) is expected by economists to be steady at 2.5% through until late 2013, before rising to a peak of around 4% over the next couple of years.

Affordability worsened in November as the median house price for all of New Zealand rose to NZ$383,250 from NZ$380,000 in October. This increased the proportion of single after tax income needed to service an 80% mortgage on a median house to 55.3% from 54.9% the previous month, the Roost Home Loan Affordability report shows.

This is the worst level since December 2010.

Household affordability for first home buyers deteriorated to 22.8% of income from 22% the previous month because the median lower quartile house price rose to a record high NZ$270,000 from NZ$262,000.

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 to its worst level since August 2010. See below or 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 had generally been improving since December 2009 as interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again. Just under 56% 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 in November 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 36.4% from 36.1% the previous month. 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      
 
Nov-12
Oct-12
Nov-11
Nov-10
Nov-09
Nov-08
New Zealand
55.3%
54.9%
54.3%
57.2%
63.8%
64.2%
Northland
46.3%
41.8%
49.4%
54.5%
68.1%
67.0%
- Whangarei
38.5%
38.5%
41.8%
47.4%
60.5%
58.0%
Auckland
74.1%
72.8%
68.9%
71.8%
80.0%
76.1%
- Central
85.1%
80.3%
78.4%
80.4%
86.7%
77.8%
- North Shore
79.5%
77.4%
73.6%
76.2%
87.3%
83.5%
- South
70.6%
68.2%
68.9%
72.3%
80.8%
75.2%
- West
62.8%
62.3%
59.0%
61.1%
67.2%
67.1%
Waikato/BOP
48.8%
47.7%
48.7%
54.3%
61.6%
60.9%
- Hamilton
51.2%
51.9%
51.6%
55.3%
63.5%
64.3%
- Tauranga
54.3%
52.8%
60.1%
57.9%
70.9%
67.2%
- Rotorua
33.4%
37.0%
36.8%
45.4%
44.5%
44.6%
Hawkes Bay
44.1%
41.5%
47.7%
48.5%
55.9%
61.9%
- Napier
46.1%
49.6%
47.7%
51.8%
57.5%
61.8%
- Hastings
46.0%
35.4%
47.1%
49.6%
57.8%
60.9%
- Gisborne
45.0%
41.8%
44.8%
52.1%
57.5%
56.2%
Manawatu/Wanganui
35.1%
34.8%
36.3%
39.8%
45.0%
47.2%
- Palmerston North
40.4%
41.2%
40.1%
44.2%
49.5%
49.0%
- Wanganui
27.9%
30.9%
33.6%
35.3%
39.2%
41.8%
Taranaki
40.9%
39.8%
43.0%
45.3%
54.2%
53.5%
- New Plymouth
48.3%
50.6%
47.4%
50.5%
67.3%
64.6%
Wellington region
54.1%
53.9%
52.4%
58.8%
65.0%
64.9%
- City
60.3%
59.8%
59.2%
66.7%
77.2%
68.0%
- Hutt Valley
47.9%
49.9%
46.7%
53.2%
57.9%
57.2%
- Porirua
53.2%
50.7%
59.1%
61.3%
67.6%
71.6%
- Kapiti Coast
52.2%
49.1%
51.6%
57.8%
60.5%
62.3%
Nelson/Marlborough
51.0%
53.4%
53.3%
57.8%
64.7%
70.6%
- Nelson
52.6%
55.8%
53.5%
59.6%
63.5%
68.7%
Canterbury/Westland
51.1%
50.9%
50.8%
50.8%
57.7%
58.9%
- Christchurch
55.9%
55.4%
57.9%
55.4%
65.8%
64.4%
- Timaru
38.9%
37.0%
37.7%
38.0%
45.3%
42.8%
Central Otago Lakes
67.0%
64.2%
65.8%
73.2%
86.5%
97.3%
- Queenstown
75.2%
81.7%
72.7%
83.5%
109.9%
101.9%
Otago
40.7%
37.9%
39.8%
40.0%
47.1%
45.7%
- Dunedin
46.6%
42.7%
44.5%
44.1%
54.1%
50.9%
Southland
30.4%
31.4%
31.1%
32.2%
35.0%
34.0%
- Invercargill
36.1%
32.6%
33.1%
35.0%
39.4%
37.8%

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)

 

 

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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12 Comments

Doctor Housing Bubble has a

Doctor Housing Bubble has a nice sidelight on household formation (and the deferral thereof) in the US, and the movements of education costs (a big factor in said deferral).
 
As we here in Godzone have two bubbles - housing plus higher ed, but little of the foreclosure and underwaterness (yet...) we aren't quite comparable.
 
But DHB's use of the tuition cost vs housing value juxtaposition is praps something a cashed-up neo-Wellingtonian could conceivably replicate?

Don't know if you saw it but

Don't know if you saw it but I did an interview with the president of REMAX recently who spoke about the housing formation issue, among other things - http://www.interest.co.nz/property/62386/visiting-remax-president-vinnie...

I would be more interested in

I would be more interested in how much disposable income is left for each area after paying the mortgage. I can see this by looking into each report by would be good to have a table up in a post. To me, this is a much better indicator of housing stress and affordability.
 
For example, compared to Auckland, weekly disposable income is over twice as much in Hamilton amd nearly 4 times as much in Rotorua:
- Auckland Central = $131.20
- Hamilton = $369.17
- Rotorua = $501.60
 
 
 

Probably a better indicator

Probably a better indicator of real inflation (debasement of the dollar) than the official cook up.

Is it really believable for

Is it really believable for the OCR to be 4% in 2 years?  I just can't see it happening. Floating home loans at 7.5%? - now then house prices might start declining rapidly.   Would the banks really want house price declines and declining lending volumes?  They're not even meeting their targets atm at 4.95% rates! 
Unlikely.
More likely OCR 2.5% will continue for the forseeable future. Until the next couple of world negative events, then maybe a drop or 2. 
 

With the slightest upward

With the slightest upward movement to mortgage rates Housing Affordability in NZ will be extinct.
Already builders are in high demand as so much of the actual building sectors capabilities have migrated.
Builders will favour long term large jobs with more stability than building Affordable Entry Level Housing.
If high level LVR are introduced then the migration of kiwis to Australia will be phenominal.A young mobile population of New Zealanders who have aspirations to OWN a home of their own will be Australias gain. Already with First Home Owners Grants, Qld builders boost.
I dont beleive for a second New Zealanders are heading home to NZ, most state quite clearly they left because they couldnt afford a home in NZ and they keep getting more expensive, nothings changed.
 
The Largest building projects in the next ten years are going to be Social Rental Housing for the masses , who just couldnt buy their own homes in NZ.
 
 

I don't really believe that

I don't really believe that young people move to Australia only because they can't afford a house in NZ.
 
According to Roost, all these would-be-migrants need to do is move out of Auckland to afford a home.

Believe it. My wife and I are

Believe it. My wife and I are one of them. Except we moved further afield than Aussie.
We can't get jobs in our chosen fields outside Auckland, so for us staying in NZ = Auckland.
But in Auckland, we also can't earn enough to cover a mortgage for a property which is within an hour's comute from our jobs.
Auckland, is only a great place to live if you are filthy rich or own property. Wages are so low that owning property whilst living there is a pipe dream.  There are FAR better places to get ahead in the world.

You must be very specalised

You must be very specalised if you could only find work in Auckland rather than Wellington/Christchurch. What is your line of work? In essence, job opportunity and house affordability are the two key reasons people leave Auckland...are these factors built into  Auckland citys growth projections...me suspects not.

this is a regional issue, not

this is a regional issue, not a national one.
 
The statement "Home loan affordability worst since December 2010 as house prices surge", when you look at the regional breakdowns, is only applicable to Auckalnd. Roost and all other realestate market commentators need to change their reporting emphasis from being a national issue, to it being an Auckland issue.
 
I know Auckland is the largest population centre in NZ, and it's realestate issues are significant and as a Wellingtonian I want ot hear about them but these articles need to move their focus and start reporting the issues more honestly - foregoing the more dramatic but misleading headlines.

You are quite right - it is

You are quite right - it is an Auckland and Queenstown issue. Everywhere else seems to have reasonable disposable income. List below ranked from highest to lowest.
City                           Disposable Income
Rotorua                   501.60
Wanganui               500.45
Whangarei              483.55
Palmerston North 476.28
Invercargill              456.12
Timaru                     433.86
Hutt Valley               404.66
Wellington City       395.73
Napier                      391.01
Hastings                 390.21
Porirua                    385.40
New Plymouth       383.97
Kapiti Coast           370.68
Hamilton                 369.17
Dunedin                 364.67
New Zealand         359.41
Gisborne                358.55
Nelson                   350.17
Christchurch         343.74
Tauranga              334.17
Auckland West     307.08
Auckland South   228.02
North Shore         185.49
Queenstown        182.30
Auckland Central 131.20

I am not an economical expert

I am not an economical expert but it was always difficult for me to understand when it times of financial insecurity our government would male prices high. I simply see no logic. People have no money already, so what is the point of making a price of a property even less affordable? Do they really expect somebody to buy homes now? Banks compete with each other forgetting about average people’s needs.  Thanx a lot for the provided news, but I doubt that everything is just that bad....but who knows of course.