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Housing affordability steady at best levels in 4 years (Updated)
March 18th, 2009
The New Zealand Housing Affordability measure from interest.co.nz was largely unchanged in February as a small rise in the median house price offset the benefits of another fall in mortgage rates. (Update to include interactive chart.)
The pause in the improving trend for housing affordability is not expected to last for long given predictions that house prices and interest rates will fall further later this year. Fresh tax cuts later in 2009 will also increase take-home pay and improve affordability.
Affordability recovered dramatically through 2008 as both the slumping housing market and an unprecedented fall in fixed mortgage rates made it easier for both first home buyers and established households to buy houses. A reduction in tax rates and income thresholds also helped lift disposable incomes.
Interest.co.nz is predicting that housing is likely to be largely affordable for most first home buyers by the end of 2009 if house prices keep falling, interest rates fall further and tax cuts are implemented.
“Affordability for most home buyers has improved dramatically and will continue to get better through the rest of 2009 as house prices ease and take-home pay improves, thanks to expected tax cuts,” said Interest.co.nz Editor Bernard Hickey.
“The only complication for first home buyers is the increasing requirement by banks for a deposit of 20% or more, which is making housing effectively less affordable,” Hickey said.
The REINZ median house price rose to NZ$330,000 from NZ$325,000 in January, eating up the benefits from a drop in the average 2 year mortgage rate for new borrowers to 5.92% from 6.10% the previous month. The proportion of an after-tax median income needed to service the mortgage for the median house fell to 54.0% in February from 54.1% in January. This is down from a peak of 82.9% in November 2007 when the median house price was NZ$352,000 and the 2 year fixed mortgage rate was at 8.75%.
However, affordability remains slightly out of reach for most individual home buyers. The threshold proportion of after tax income considered prudent to sustainably own a house is around 40%. Anything above that is starting to become unaffordable.
The Housing Affordability report’s measure of affordability for a typical first home buyer shows the mortgage servicing proportion at 47.1% in February, up slightly from 46.8% in January and down from 70.1% a year earlier. This measure is for a median income earner aged 25-29 buying a first quartile home. Interest.co.nz thinks the ‘affordable’ threshold is 40% for such a home buyer.
The report’s measure of affordability for a ‘typical’ household shows that proportion dropped to 35.3% in February from 35.4% in January. This is down from 52.3% a year ago and a peak of 54.1% in March 2008. This ‘typical’ household includes one 30-34 year old male earning a median income, one 30-34 year old female earning 50% of a medium income and one child over five. Interest.co.nz thinks the ‘affordable’ threshold is 30% for such a household.
The report’s measure of a ‘typical’ first home buying household shows the proportion required to buy the first quartile home increased slightly to 22.3% in February from 22.1% in January. It has, however, improved from 33.1% a year ago and 34.9% at its peak in November 2007. This measure is for one full time male aged 25-29 and one full time female aged 25-29 with no kids. Interest.co.nz considers the affordability threshold for this group as 30%, although that doesn’t leave room for children.
Four of the 12 regions surveyed in the Home Loan Affordability report showed improvements in affordability, including Auckland, Taranaki, Canterbury and Central Otago Lakes. This was largely because house prices fell in these areas. Eight the regions showed deteriorations, including Northland, Waikato/Bay of Plenty, Hawkes Bay/Gisborne, Manawatu/Wanganui, Wellington, Nelson/Marlborough, Otago and Southland. House prices rose in these areas.
Southland continued to be the cheapest region in the nation with the typical home buyer having to pay 32% of take-home pay to afford the mortgage on a median house. The most expensive region was Central Otago Lakes region on 74.9%.
Tags: Bernard Hickey, First Home Buyer, Fixed Mortgage Rtaes, Home loan affordability, House prices, Housing, Housing Affordability, Interest Rates, interest.co.nz, Mortgage rates, REINZ, Variable Mortgage Rates
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March 18th, 2009 at 11:04 am
I sold up a few years ago, and have been waiting for the market to hit bottom before I bought again.
In the last 2 weeks in Tauranga the market has taken off with a hiss and a roar. Every advertised property I have enquired about this week is already under contract. Looks like I have left it too late. The sales figures for March will be fairly impressive I think.
The bottom of the market seems to have reached and we seem to be rapidly heading up again. I am not an agent- I have no interest in talking up the market- but those people who are holding out expecting to pick up a bargain later on this year are dreaming.
March 18th, 2009 at 11:08 am
.. hang in there housebuyer, we haven’t seen the bottom yet. This is just a short term rally on longer downwards trend.
March 18th, 2009 at 11:57 am
In 1987 to 1992 the real estate market contracted big time ,there were many false dawns of recovery.At the moment the adage is” PATIENCE IS A VIRTUE”,housebuyer.What we see here is known as a” DEAD CAT BOUNCE.”
March 18th, 2009 at 11:59 am
agree with matt s, housebuyer. there’s no rush. asset bubbles tend to deflate in steps as people wrongly call the bottom of the market. fools rush in and all that… a v shaped recovery has yet to be seen when a major asset market bubble bursts. rather every time in history a bubble bursts the market splats rather than bounces. it bottoms out, skids along a floor and stays there, often for years while inflation does its work invisibly decreasing prices yet more. seriously, i really don’t think you’ll won’t miss the bottom and in my humble opinion it’s at least two years off. at least. i’m in the same position as you, housebuyer, by the way. i have money and i could buy a nice house right now. but i was patient on the way up and will remain patient on the way down…
March 18th, 2009 at 1:06 pm
Check out this UK article and the accompanying chart.
I suspect we are in the Return to normal phase.
http://www.moneyweek.com/investments/property/uk-house-prices-will-plummet-look-at-this-scary-chart-14664.aspx
Housebuyer- you have heard of Location, L, L
New one is Patience, Patience, Patience
March 18th, 2009 at 1:41 pm
I do hear what you all are saying but… I just wonder if there are things at play here in NZ that make us slightly different from other countries.
-Our low dollar makes us attractive to overseas buyers.
-National are planning to increase immigration.
-People have more money in their pockets now than they did a year ago with lower petrol, taxes and interest rates.
-There is still a heck of a lot of money around- some people did extremely well out of the last five years.
-People may be looking for a bolthole in case global warming gets out of hand- we are seen as a lifeboat country.
-Commodities seem to be holding up ok.
-The “recession” will probably mostly impact people who were already forced out of the property market.
-Our tax system favours property
-New Zealanders love buying property.
Personally I also fear inflation getting going and wiping out the value of my savings.
March 18th, 2009 at 3:08 pm
“look-at-this-scary-chart” – yay, more meaningless linear charts.
Have a look at UK house prices on a linear chart here:
http://www.wheresmyproperty.com/prices/historicprices.htm
compared with a logarithmic chart here:
http://www.wheresmyproperty.com/prices/historiclog.htm
Read about the difference between the two here:
http://www.fool.com/foolfaq/foolfaqcharts.htm
March 18th, 2009 at 3:24 pm
IF mortgage approvals are any guide it looks as though the apex of the housing market ‘dead cat bounce’ has already been and gone. Approvals hit a peak in the week ending Feb 13th and have been trending down since then:
http://www.rbnz.govt.nz/statistics/monfin/c16/data.html
I say ‘IF’ this data is a guide because mixed in with this as far as I am aware is folk re-mortgaging. Certainly the data shows a February spike which chimes with the extra sales made in February. So far (if the data is to be taken at face value) it indicates a relative drop off in activity nationwide in March compared to February.
March 18th, 2009 at 5:29 pm
housebuyer, What is the premium for owning in your market? How much more does it cost to own vs rent? Consider that monthly savings before you plunge into a highly speculative “investment”.
March 18th, 2009 at 5:50 pm
Housebuyer: Where is the money going to come from to create this resurgence in house prices? NZ householders are already highly leveraged (about 160% relative to annual income, compared with about 60% 20 years ago). Plus about 40% of bank money for loans is now sourced from overseas. So just how much risk are the Mrs Watanabes prepared to take in lil ole NZ, considering the risk aversity that has entered the market with the crisis? No, the housing market will remain road kill for years.
re the inflation. I am in the same situation as you, & I do have the same fears about inflation – I think u are quite correct there. A sudden jump in oil prices as the result of a terrorist strike etc, & it will be good night nurse. So you are wise to be nervy, but why swop a risky hand for a sure loser? Good luck.
March 18th, 2009 at 6:06 pm
housebuyer is clearly an industry plant pretending otherwise:
1st post – plays dumb
- sold a few years ago
- but now market “is taking off”!
2nd post – suddenly savvy
- then sets out 9 real estate industry talking points
- sows a little fear about wiping out savings.
Forgive my suspicion.
My 2 cents – affordability might be improved, but it isn’t good yet, and its a little hard to see the funding part of affordability coming down any further (quite the contrary is possible as longer dated swap rates have started moving up), or the wages part going up, which only leaves house prices falling further or stagnating.
March 18th, 2009 at 6:52 pm
Andy H- thanks very much for the link- it was extremely useful to see some numbers. It looks like the boom here may just be the cashed up buyers like me finally deciding to make a move.
I am not an industry plant- just someone trying to work out what to do. The “talking points” are just the thoughts that rattle around in my head- I spend too much time reading all points of view on the net and it is making me somewhat crazy. And inflation/hyperinflation is the natural end result of printing money which is how the recession is being “solved” overseas.
Frankly it was scary finding everything I was looking at suddenly sold. I now think I can probably safely stay out of the market- for a number of reasons I don’t really want to buy just at the moment anyway. Thanks guys.
March 18th, 2009 at 7:39 pm
housebuyer – from where do you gather that National will increase immigration?
who will want to come here (except maybe a few rich retirees) when there are no jobs?
UK is picked to peak at 5% unemployment, us at least 8%
It doesn’t make any sense to increase immigration – a whole lot more immigrants with little jobs to go aorund means more unemployed and a lot more money needing to be handed out by the government in the form of the DOLE
mate, we are still on the way down
what’s more I don’t buy into anecdotal reports from agents at all.
They rival used car dealers as the number one bullshiiters
March 18th, 2009 at 8:08 pm
You can follow the weekly RBNZ ‘mortgage approvals’ data in one of our new chart series, here >>> http://www.interest.co.nz/charts/gallery12-160.asp
We update this within an hour of new data being added each Wednesday.
March 18th, 2009 at 8:10 pm
sorry I should have added – some increase in wealthy business immigrants could be useful to stimualte the economy, but we certainly need to cap both skilled and unskilled labour categories
March 18th, 2009 at 8:11 pm
New charts for home loan affordability, nationally and by region, are now available as well, and you can find them here >>> http://www.interest.co.nz/charts/gallery12-50.asp
March 18th, 2009 at 8:13 pm
Matt,
the US has gone over 8% unemployment already.
Depending on whether you depend on the “Official” stats, or whether you look at the stats from Shadowstats.com, the US unemployment rate is set to go higher.
Latest official figures were around 8.1%.
See http://www.bloomberg.com/apps/news?pid=20601087&sid=a3qeR7N9c3B0&refer=home
“Consumers will borrow if they see solid job prospects and rising wealth, economists said. Right now, neither condition is in place. The unemployment rate in February was 8.1 percent, up almost 2 percentage points in the past six months. Household wealth fell by a record $5.1 trillion last quarter. Personal savings as a percent of disposable income has risen every month since August. ”
And from http://www.bloomberg.com/apps/news?pid=20601103&sid=aLBsJjyI1cU4&refer=us
“Unemployment rates rose in January in every U.S. state except Louisiana, according to the U.S. Labor Department. Four states have jobless rates above 10 percent, including Michigan, whose 11.6 percent figure was the highest since 1984.
Economists surveyed by Bloomberg News March 2 to March 9 projected the U.S. jobless rate will reach 9.4 percent this year and the economy will shrink 2.5 percent. ”
The guy at Shadowstats.com measures unemployment at more like 18%.
March 18th, 2009 at 8:44 pm
Gibber, I was talking about the UK not the US
How many yanks will immigrate here? I don’t know the answer, but with the kind of losses they would make on selling their homes right now I would suggest not that many. YOu might get a few older ones who decide to sell their San Francisco homes for $700,000 instead of 1 million and retire here, but not that many I would suggest
the yanks aren’t really great emmigrants
March 18th, 2009 at 9:47 pm
Matt,
ok – misinterpreted the “us” in your sentence above as “US”.
March 18th, 2009 at 11:32 pm
Housebuyer
You are seeing this situation very similar to the way i see it.
There is a vested interest on this board at work to attempt to alter the realities you are seeing but until we see falling lamb prices or fish prices or grocery prices these alternate realities dont seem very likely. We do live in a globalised world at the moment anyway and food prices in NZ are still very cheap compared to Europe. Short of www3 i dont see it changing.
March 18th, 2009 at 11:51 pm
housebuyer Says:
March 18th, 2009 at 1:41 pm
-New Zealanders love buying property.
Wot that mean?
March 19th, 2009 at 12:19 am
Ill never understand the link between short term interest rates and housing affordability.
As a first home buyer today Id be looking at a mortgage for around 25-30 years. The fact I could get a best case scenario of around 6% for 5 years means that Ive got another 20-25 years of paying off at a completley unknown interest rate. Irrespective of the rate I can get today Ill still owe the majority of the principal in 5 years time.
If you can only just afford a mortgage because interest rates drop you cant afford a house as far as Im concerned.
To me the only relevant factors in housing affordability are house prices and income (plus other minor things interest rates included). Id much rather borrow $200,000 today @ 10% than $300,000 at 5%. Over the life of the loan Id end up paying back alot less.
Houses prices are still due a massive drop, particularly in the lower end of the market which has barely dropped at all. I wont be buying this year. Ill reassess around christmas but its likely I wont be buying near the start of next year either.
March 19th, 2009 at 12:32 am
I think New Zealanders love buying property (in general terms). A sure-fire way to strike up another boring conversation is mumble something about mortgage rates and property prices, then sit back and watch the magic happen. Akin to these bloggs really. No one would deny there’s certainly more downward pricing pressure than upward at the moment. The time will finally come when this flips, but in reality when, is anyones guess. Much easier to find a house you like and can afford, and get on with living in it.
March 19th, 2009 at 12:43 am
Bullitt, might want to re-think your calculations
$200,000 at 10% over 30 years = $431,850 ish interest bill;
$300,000 at 5% over 30 years = $279770 ish interst bill
Sorry.
March 19th, 2009 at 12:44 am
“-New Zealanders love buying property.
Wot that mean?”
In Germany people prefer to rent. It is common for renters to install new kitchens and decorate and so forth and then be long term renters.
The UK and NZ are perhaps exstreme cases where people prefer not to rent.
Then there are the NZ capital gains tax reasons why people love to buy a few old rentals and tart them up to rent.
The NZ government has encoraged the move away from state housing to private ownership and private rentals.
The country has moved away from a degree of equalness of social strata with basic but comfortable state rentals embedded in desirable areas towards ‘them that own and earn a fair bit of money’ and ‘them that rent and dont earn much money’.
Then you get all the inflationary benefits from having property if you are canny and buy low and tart up a bit and are prepared to be in love with property all weekend and most evenings!
March 19th, 2009 at 8:15 am
RDee, if these forums are boring, why do you read them?!!
I think what Bullitt is saying is that they don’t want to take the risk of $300,000 at 5% turning in to $290,000 at 10% in 5 years time. To that, I would say the main reason the RBNZ moves rates up is to try and halt rising house prices, so if you’re at 10% in 5 years time you’ve probably just had another price surge and made some good equity growth.
You only ever get one or the other, low interest rates & low capital growth & higher cashflow, or high interest rates & high capital growth & lower cashflow. It would be suicidal for any government to have high interest rates at a time when house prices were static or falling.
March 19th, 2009 at 8:47 am
By the way, Murray is quite right about log vs linear charts. However:
- the link he gives stops house prices in the UK in about 2003 (ie before the remainder of the bubble and the subsequent drop); and more importantly,
- its a link to nominal house prices – the same, up to date, graph with real prices shows a long term trend of < 3% real growth (including the current boom), and that there has been a considerable period of above trend values which has still, with a 15% fall, not been fully addressed (to say nothing of whether it will over-shoot downwards).
NZ’s pathetic stats availability means its difficult to find the same data, but I’d expect the same result but without the same magnitude of fall in the past year.
March 19th, 2009 at 8:54 am
Plus while I’m at it. Surely it is common sense that average house prices must reflect average incomes in the long run. It is not possible to have growth in the two diverging forever unless the cost of borrowing can become ever lower (and that assumes a willingness on the banks behalf to lend ever-higher LVRs).
Even if you think 6-7x income is ok for a house price to income ratio, the economics of buying such a house require growth in value (significantly) in excess of income levels. Even if this comes true, and it becomes 7-8x … can you assume the same again to get to 8-9x? And so on – compounding is cruel.
March 19th, 2009 at 8:59 am
“-New Zealanders love buying property.
Wot that mean?”
I see a trend where once community and nieghbourhood were important, NZr’s have been redefined as a nation of property speculators. Gareth Morgan talks about Labours Third World Solution (high migration) and I would argue that these policies are industry led. Our future is to be Owners in mansions and renters in tenement blocks.
Chris Trotter argued with Michael Huton (this morning) re foreign ownership saying people used to be hung drawn and quartered for selling out to foreigners. I.e given the size of the wealthy population overseas, the power of banks, collusion of government and the Property Council etc the people down the ladder can look forward to more and more of the sort of “progress” that brings us traffic gridlock.
March 19th, 2009 at 11:53 am
Thank-you IanC, finally someone who understands log vs linear. I would like to have some up-to-date links for log charts both here and overseas but they are near impossible to find – so if anyone can find some?? Unfortunately 99% of stuff on the net and in newspapers is linear charts over the last 10 years and as such are a load of garbage.
What I would like to see is a LOGARITHMIC graph of food, wages, rents & house prices over the last 50 – 100 years, then we would see the real picture. I suspect over the last 10 years, especially in NZ, it would show wages falling behind.
March 19th, 2009 at 2:04 pm
You can get much of the info from stats.govt.nz and then analyse yourself. I am too lazy!
March 19th, 2009 at 3:30 pm
USA GDP: $14 Trillion
“Total Housing Stock” at peak of bubble: $20 Trillion
NZ GDP: $180 billion
“Total Housing Stock” at peak of bubble: $630 billion.
What is WRONG with this picture?
NZ is ASKING for a big, big crash sooner or later even if we somehow avoid it this time, if we don’t get some SENSE on house prices.
I want to start a first home buyers association and co-ordinate a mass boycott of the market until house prices in NZ are back to an income median multiplier of 3.0 as per the Demographia surveys. We are being suckered.
Economist Robert Bruegmann described one of the effects of the housing bubble in the USA as “the biggest wealth transfer in history”: FROM first home buyers who have to mortgage themselves to the bone to get onto the home ownership train, TO all the baby boomers who are cashing out and spending their capital gains on house prices; after having pulled up the drawbridge through NIMBYism and envirnomental activism, on the scale of housing development that THEY benefitted from.
March 19th, 2009 at 3:34 pm
“Southland continued to be the cheapest region in the nation with the typical home buyer having to pay 32% of take-home pay to afford the mortgage on a median house. The most expensive region was Central Otago Lakes region on 74.9%.”
You know what the figure in the USA is where they start to regard a mortgage as “SUB-PRIME”?
Anything over 45%.
Kiwis……….DUH. DUH. DUH.
March 20th, 2009 at 4:53 am
That median home value is still pretty high for a market like New Zealand, I think home values will need to drop before sales go up again.
March 22nd, 2009 at 6:34 pm
The house prices will have to finish dropping down from 4-6 times the average income to 2-4 times the average income. Prices have come down but its only halfway there now— so its going to have to drop a lot further. If I were going to buy a house I would wait until the end of this year which will be closer to the bottom.