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%
|
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