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Home loan affordability improves to best level in 1 year; Queenstown least affordable again; Timaru most affordable

Home loan affordability improves to best level in 1 year; Queenstown least affordable again; Timaru most affordable

By Bernard Hickey

A fall in fixed mortgage rates because of a more moderate outlook for economic growth helped improve home loan affordability in August to its best level in a year, the Roost Home Loan Affordability report shows.

A drop in average bank fixed mortgage rates was more than enough to offset a slight rise in the median house price nationally, the monthly report shows. Affordability is set to improve further through the final four months of the year as house prices are subdued at best and interest rates are flat to falling, while tax cuts on October 1 will boost disposable incomes.

See our interactive charts for the Roost Home Loan affordability reports below and here.

The Reserve Bank’s more moderate outlook for the economy and interest rates last week reinforced a move already reflected in lower market interest rates and a slowing of activity in the housing market. The national median house price rose 0.3% to NZ$350,000 in August from July and is now down 3% from a record high of NZ$360,500 in March.

The average two year mortgage rate fell to 6.79% in August from 6.98% in July and has fallen further since the end of August to around 6.75%.

The Roost Home Loan Affordability report measures the affordability nationally and regionally for income earners and households, taking into account median house prices, interest rates and incomes. Affordability improved significantly in West Auckland, Hastings, Taranaki, Wellington City and Dunedin as median house prices fell sharply.

But affordability worsened slightly in Whangarei, Tauranga, Porirua and the Kapiti Coast because of higher house prices. Queenstown is again the least affordable area in New Zealand, taking that mantle back from Auckland, which had that title for one month. Timaru was the most affordable.

Affordability has been improving since December 2009 as house prices have flattened out and interest rates have fallen, the monthly measure calculated by interest.co.nz in association with Roost found.

“Home loan affordability has been one of the bright spots on a greyer economic horizon in recent months,” said Roost spokeswoman Margaret Smith.

“Home buyers have more choice and more power in the property market at a time when their incomes are about to increase and interest rates have fallen,” Smith said.

The Reserve Bank held the Official Cash Rate (OCR) as expected at 3% last week and dramatically lowered its forecast track for interest rates and economic growth, surprising some economists and pushing market interest rates lower. Most home owners are still on fixed mortgages, but more borrowers have chosen to float in the last year, given floating rates at around 6.2% are cheaper than average longer term fixed rates at around 6.75%.

Gap closing

However, the gap has closed over recent months, making the fixed vs floating decision more evenly balanced.

The Roost Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80% mortgage on a median house improved to 58.6% in August from 59.5% in July and is at its best level since September 2009. This figure would have been even better at 56.4% if new tax rates to be applied from October 1 had been used because of a NZ$29 rise in after tax weekly incomes.

Affordability hit its worst level of 83.4% in March 2008 just after house prices peaked and 2 year mortgage rates were close to 10%. Many home buyers moved early in 2009 to take advantage of lower interest rates and look for bargains, which improved the number of houses sold and raised prices.

But house sales volumes have weakened in recent months as tax changes in the May 20 budget and softer economy have affected sentiment and activity. The Christchurch earthquake is also expected to dampen activity in September. Affordability is difficult in the central areas of Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but homebuyers in smaller provincial cities will find home ownership much more affordable.

Household affordability better

Households with two incomes are also in a stronger position. Affordability for the typical first-home-buyer also improved to 50.1% in August from 52% in July and is at its best level since August 2009. Meanwhile, affordability for households with more than one income improved to its best levels since September 2009. This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house fell to 39.3% in August from 39.9% in July.

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 survey’s measure of a ‘standard first-home-buyer household' found the proportion of after tax income needed to service the mortgage on a first quartile home fell to 24.2% in August from 25.1% in July.

This measure peaked at 35% in June 2007. This 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.

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)

 

Regional home loan affordability comparison:      
mortgage payment as a % of weekly take-home pay      
 
Aug-10
Jul-10
Aug-09
Aug-08
Aug-07
Aug-06
New Zealand
58.6%
59.5%
57.4%
73.4%
82.6%
69.1%
Northland
57.2%
57.8%
53.9%
69.4%
81.0%
64.3%
- Whangarei
52.1%
49.1%
44.6%
63.0%
76.1%
56.8%
Auckland
70.1%
72.1%
70.0%
88.3%
99.2%
81.9%
- Central
78.0%
78.2%
77.4%
91.5%
103.9%
89.0%
- North Shore
75.6%
76.4%
76.9%
97.0%
109.1%
87.5%
- South
72.0%
72.9%
71.8%
88.1%
99.7%
80.4%
- West
61.6%
67.0%
60.6%
76.1%
82.6%
71.9%
Waikato/BOP
57.5%
57.1%
56.0%
74.5%
81.1%
67.1%
- Hamilton
59.8%
60.9%
59.6%
76.7%
86.9%
70.3%
- Tauranga
65.3%
63.8%
62.2%
80.0%
93.8%
79.0%
- Rotorua
51.1%
47.9%
45.5%
63.9%
60.1%
51.4%
Hawkes Bay
51.2%
50.7%
47.1%
65.9%
72.7%
63.2%
- Napier
57.6%
54.6%
49.7%
68.5%
75.1%
65.9%
- Hastings
50.6%
54.5%
47.5%
60.5%
71.7%
64.2%
- Gisborne
45.5%
54.6%
57.4%
77.2%
80.7%
60.1%
Manawatu/Wanganui
41.8%
43.0%
37.9%
55.9%
55.6%
48.7%
- Palmerston North
43.9%
44.4%
42.3%
58.0%
64.2%
56.7%
- Wanganui
42.5%
38.3%
34.9%
45.5%
47.3%
41.6%
Taranaki
47.8%
54.1%
51.8%
60.5%
66.6%
58.2%
- New Plymouth
60.1%
61.1%
59.1%
71.9%
82.6%
70.5%
Wellington region
61.7%
60.8%
60.6%
77.1%
83.6%
69.5%
- City
63.5%
66.2%
69.9%
78.2%
83.7%
73.7%
- Hutt Valley
53.5%
53.1%
49.7%
64.3%
71.1%
61.1%
- Porirua
67.0%
64.3%
72.7%
79.3%
85.2%
68.9%
- Kapiti Coast
61.6%
57.9%
53.2%
64.1%
85.5%
65.3%
Nelson/Marlborough
61.1%
61.6%
59.6%
80.1%
86.5%
71.7%
- Nelson
61.1%
58.8%
55.9%
78.4%
92.8%
72.5%
Canterbury/Westland
54.3%
54.4%
50.3%
66.6%
76.2%
63.7%
- Christchurch
59.8%
60.1%
55.9%
72.8%
83.7%
70.5%
- Timaru
38.0%
36.8%
43.8%
59.8%
51.6%
52.4%
Central Otago Lakes
81.5%
71.9%
78.0%
111.7%
120.8%
111.8%
- Queenstown
93.2%
80.4%
90.8%
114.6%
148.8%
113.6%
Otago
41.6%
45.2%
42.3%
55.3%
60.6%
52.9%
- Dunedin
47.6%
51.3%
50.8%
62.6%
65.4%
59.7%
Southland
35.4%
38.9%
36.0%
46.1%
45.6%
36.2%
- Invercargill
40.2%
41.0%
39.8%
47.3%
49.8%
39.9%

No chart with that title exists.

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20 Comments

As soon as the macro credit bomb goes off...local banks will have to hike rates to fund their foreign gambling habit...and we know what that will do for home affordability. It will also suck munny out of Noddy making a joke of the projections for growth.

It is a simple question then...when will the bomb go off.

It doesn't matter how much spin and BS we get out of wgtn and the poodle media...none of that fluff will change the dynamics of the disease.

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As I have been saying on another thread, "DrHousingBubble" in California says that there is a time lag of about 2 years between sales dropping and listings-to-sales ratios multiplying, and the price crashes. They are just a couple of years ahead of us, that is all.

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Like this ? Looks like the Government is about to compete for domestic and international funds.

 "Philip Combes, treasurer of New Zealand's debt management office also said ( Sept. 22) he wanted to raise the outstanding stock of its government bonds to around 50 billion New Zealand dollars...At the moment, outstanding debt stock totals around 35 billion New Zealand dollars"

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I wish someone would explain the various categories in the RBNZ Balance Sheet "Assets" that have been ballooning in recent years:

http://www.rbnz.govt.nz/statistics/rbnz/f2/download.html

Download that and take a look.  "Marketable Securities"? What marketable securities does the RBNZ need to be holding several times as much of now, as a few years ago? And why? What are the implications for "money supply"?

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I don't know what "marketable securities" are Phil. Didn't we start doing "swaps" with the Fed about this time? How about sending in a question to the RB and letting us all know.

Cheers

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http://www.doctorhousingbubble.com/collapse-in-southern-california-home…?

SITE (very educational):

http://www.doctorhousingbubble.com/

Your assumptions about the future probably are not nearly pessimistic enough.

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I know thanks to Rodney Dickens' extremely informative estimates, that the "logjam" has been here for nearly a year already. The ratio of listings to sales has been several times higher than historical norms, for nearly a year. If the "DrHousingBubble" rule of thumb is right, we should see some really serious price crashes in another year or so.

"DrHousingBubble" also talks about "grey inventory"; people who want to get out but have given up and taken their house off the market.  (People who decided to rent instead of own, at any time since about 2002, are smart indeed). Then there are all the people who have gone into default on their mortgages, but the lenders are too scared to foreclose on any more people because it has such an effect on their entire "book". (I suppose a lot of these occupants will end up having had a home for free for at least a while - not that anyone could have planned it that way).

Apparently as the property bubble expanded in California, internal migration dropped noticeably going by moving van stats. Apparently that is another feature of a property bubble and unaffordable homes - reduced mobility of the workforce - yet another whammy to the economy. Meanwhile, in California, most of the moving vans that were operating, were taking people to other States where homes were affordable thanks to pro-growth urban planning. NZ-ers and Australians have not had the luxury of this option, sadly. Our urban planning professions have succeeded in getting their members who staff the councils, to act monolithically. I expect our crash to be the worse for that. The "Texas option" actually blunted the severity of the "US aggregate" bubble and crash.

Another feature of a property bubble: empty "investment" properties. Investors cease to bother about tenants as they greedily watch capital gains alone. Walk around any neighbourhood in NZ. Around 1 in 100 homes is empty.

Yep, you learn a lot from DrHousingBubble. Only Rodney Dickens comes close in NZ, for attempting to crunch the numbers like that.

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Building low "economy stimulating" interest rates into nationwide housing affordability considerations is like holding homeowners hostage to threaten the Reserve Bank. "One false move unpwards in interest rates and the homeowners get a bullet to the head".

Poor old Ludwig Von Mises. The world is STILL following that false prophet Keynes. It is a question whether old Ludwig will ever be heard of by the most, let alone vindicated, even after what he has said about endless credit expansion has come to pass in its final, total crash, form. He has been proved soooo right already even though that final total crash has not yet happened.

Capitalism, or the free market, or whatever you call it, requires interest rates to be set by the market as the result of the interaction between supply (savings) and demand (borrowings). Whatever is bringing about the ruin of western economies, it sure has not been that for most of the last century.

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What the heck has Queenstown got that Timaru doesn't ! Go figure ............... oh yeah , Mother Hubbard & the empty SCF cupboard .............. silly me , to forget .

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Hi Bernard

re Auckland region

 "The median weekly take-home pay for a typical buyer was $811.14 in August, up 1.6% from the $798.25 in August 2009."

Is that the median take home pay for the region as a whole or the figure required to be in a position to consider buying a house

thnks

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The median take-home pay used in this analysis is sourced from the LEEDS data of Statistcs NZ. Basically, it is data built up from the IRD PAYE sources and is extremely comprehensive. We use the median pay data for both the 30-34 age range in each region, and for the 25-29 age range for our first-home-buyer series. For our Household measures, we separate out these medians by gender when we use them.

With this data, we then deduct the current IRD tax rates, giving take-home-pay. This brings in the effect of tax cuts.

The medians are of everyone, not just home buyers.

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Speaking of tax rates;  The UK seems Business Secretary seems to have an idea! "..Mr Cable called for the "tax base" to be shifted on to "property and land". He said it was far harder for people to dodge property taxes than income tax. ..Mr Cable expressed concern over the "extreme concentration of wealth" among those who own property. His comments will alarm middle-class home owners ...(and would) shift the tax base to property and land which cannot run away ...."

http://www.telegraph.co.uk/news/newstopics/politics/liberaldemocrats/8019480/Liberal-Democrat-conference-Vince-Cable-turns-his-guns-on-home-owners.html

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The new govt in Britain seems to be full of good ideas about land lately.

Full marks to the new Conservative government. The property price bubble cycles experienced by Britain ever since their 1947 Town and Country Planning Act, are exhibit number one that planners all over the world should have learned from. Now it seems the British themselves have been the first to learn.

United Kingdom Decentralisation and Localism Bill
20 July 2010

The planning system in the United Kingdom has entered a phase of reform under the new Government with the Decentralisation and Localism Bill. The Bill would apply to England and Wales and devolve greater powers to councils and neighbourhoods and give local communities control over housing and planning decisions.

The Bill will:

•abolish regional spatial strategies
•return decision-making powers on housing and planning to local councils
•abolish the Infrastructure Planning Commission and replace it with an efficient and democratically accountable system that provides a fast-track process for major infrastructure projects.
•create new powers to help save local facilities and services threatened with closure, and give communities the right to bid to take over local state-run services
•abolish the Standards Board regime
•give councils a general power of competence
•require public bodies to publish online the job titles of every member of staff and the salaries and expenses of senior officials
•give residents the power to instigate local referendums on any local issue and the power to veto excessive council tax increases
•give greater financial autonomy to local government and community groups
•create Local Enterprise Partnerships (to replace Regional Development Agencies) – joint local authority-business bodies brought forward by local authorities to promote local economic development
•form plans to deliver a genuine and lasting Olympic legacy
•abolish Home Improvement Packs
•create new trusts that would make it simpler for communities to provide homes for local people
•review the Housing Revenue Account
See the Royal Town Planning Institute website for more information.

http://www.rtpi.org.uk/item/3741/pg_dtl_art_news/236/pg_ftr_art

The Royal Town Planning Institute website provides considerable insight into what lies behind this move.
This is the Parliamentary Statement from the Minister at the very end of the letter to the Planning Officers from the Chief Planning Officer of the Department of Communities and Local Government:

Parliamentary Statement
Revoking Regional Strategies
Today I am making the first step to deliver our commitment in the coalition agreement to “
rapidly abolish Regional Spatial Strategies and return decision-making powers on housing and planning to local councils”, by revoking Regional Strategies.

Regional Strategies added unnecessary bureaucracy to the planning system. They were a failure. They were expensive and time-consuming. They alienated people, pitting them against development instead of encouraging people to build in their local area.
The revocation of Regional Strategies will make local spatial plans, drawn up in conformity with national policy, the basis for local planning decisions. The new planning system will be clear, efficient and will put greater power in the hands of local people, rather than regional bodies.

Imposed central targets will be replaced with powerful incentives so that people see the benefits of building. The coalition agreement makes a clear commitment to providing local authorities with real incentives to build new homes. I can confirm that this will ensure that those local authorities which take action now to consent and support the construction of new homes will receive direct and substantial benefit from their actions. Because we are committed to housing growth, introducing these incentives will be a priority and we aim to do so early in the spending review period. We will consult on the detail of this later this year. These incentives will encourage local authorities and communities to increase their aspirations for housing and economic growth, and to deliver sustainable development in a way that allows them to control the way in which their villages, towns and cities change.

Read the whole letter:

http://www.communities.gov.uk/documents/planningandbuilding/pdf/1631904....

Thanks to Hugh Pavletich (of course) for circulating this a few weeks ago.

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It Looks like home affordability is improving in Japan as well...

This just in and printed in yesterdays newspapers in Tokyo.

RESIDENTIAL LAND PRICES DOWN FOR 19th STRAIGHT YEAR.

The average price of land throughout Japan fell 3.4% in the year to July, marking the 19th straight annual decline. Of the 21,786 locations surveyed, 98.5% registered decreases.

In Tokyo residential land prices fell 3%.

 

_ Some serious deflation going on over there !

 

 

 

 

 

 

 

 

 

 

 

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I wonder if this would be the case if they started getting on with the Chinese.

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The table above says it all ,  I am amazed at fact that Aucklanders spend 70% of the national average weekly wage on their mortgages , and this is in an environment where interest rates are the lowest in two generations or more . The acceptable repayment ratio used by banks in most western economies seems to be a mortgage loan that does not exceed more than 33 to 50 % of  gross family  income. What happens when rates start climbing as they must ? The mortgagee foreclosures will surely rocket . The other matter is the  'land shortage ' which Estate Agents tell us of . Why is there a land shortage ? This country has a mere 4,0 million people , the population of a small American or European city. We need to rezone and  release more land for development, especially in Auckland to get rid of the artificial backlog causing this supposed land shortage .

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yes but boatman opening up more land in Auckland would upset you boaties if they went ahead and reclaimed land by filling in the Hauraki Gulf and Manukau Harbour and it would also involve Maori seabed ownership issues. being a boatman i figure you know land usually stops where the ocean starts....

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And we have this September article up today because.....?

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Sorry Nicholas. A temporary glitch now rectified.

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No probs! Made me rub my eyes a bit, though.....

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