By Greg Ninness
It became easier for first home buyers to get into their own home in seven regions last month, thanks to falling lower quartile prices and lower mortgage interest rates, Interest.co.nz's latest Home Loan Affordability Reports show.
According to the Real Estate Institute of New Zealand (REINZ), five regions posted significant falls in their lower quartile selling prices in July compared to June. They were Northland, Auckland, Hawke's Bay, Taranaki, Nelson/Marlborough, while Canterbury and Southland posted modest falls.
And first home buyers in all regions would have benefited from the ongoing slide in mortgage interest rates, with the average of the two year fixed rates offered by the major banks dropping from 3.87% in June to 3.81% in July.
The biggest drop in the lower quartile price was in the Hawke's Bay, where it fell back from its record high of $395,000 in June to $370,000 in July (-6.3%), followed by Auckland where it dropped from $671,000 in June to $650,000 in July (-3.1%).
July was the fourth consecutive month that the lower quartile price has fallen in Auckland, dropping by $30,000 (-4.4%) over that period from its record equalling high of $680,000 in March.
However the price falls were not uniform across the Auckland region.
The biggest fall was in Auckland Central (the suburbs located within the old boundaries of the former Auckland City Council) where the lower quartile price dropped by a staggering $123,000 (-17.4%) from $708,000 in June to $585,000 in July.
That was the first time that the lower quartile price in the Central Auckland suburbs has been below $600,000 since October 2017.
One reason that the lower quartile price could have fallen so sharply in Central Auckland was that there was a higher number of apartments in the sales mix.
According to the REINZ, apartments accounted for 33% of sales in Central Auckland in July, compared to 23% in June, so it’s likely the drop was caused by a combination of a change in the mix of properties being sold and an overall decline in prices at the lower end of the market.
But there were also significant falls in the lower quartile price in west Auckland, where it dropped from $663,000 in June to $650,000 in July (-2%), and in Papakura where it dropped from $580,000 in June to $540,000 in July (-6.9%), while in Franklin it slid from $630,000 in June to $565,000 in July (-10.3%).
In Manukau the lower quartile price was unchanged at $650,000 while lower quartile prices were up compared to June in Rodney, where it increased from $699,500 to $711,000, and on the North Shore where it increased from $795,000 to $799,000.
Looking at the Auckland market as a whole there is no doubt that the combination of lower interest rates and mostly lower prices has been beneficial for prospective first home buyers in the region.
The Home Loan Affordability Reports estimate that the mortgage payments on a lower quartile-priced home in Auckland have come down from $694.69 a week in July 2017 to $616.96 a week in July 2019, a saving of $77.73 a week.
However scraping up the money for a deposit is likely to remain a substantial challenge for most first home buyers in Auckland.
The Home Loan Affordability Reports estimate that if a couple working full time who both earned the median wage for 25-29 year olds in Auckland set aside 25% of their after tax pay every week for four years, which would be no mean feat, they would have saved $76,870 (including interest).
That is only 11.8% of the lower quartile selling price of homes in Auckland in July.
Although banks can provide mortgages to people with less than a 20% deposit, they would likely be paying a premium interest rate for the loan and may also be required to pay for mortgage protection insurance as well.
So although falling interest rates and lower prices will be helping first home buyers in Auckland, getting into their own home still won’t be easy unless they are on higher than average incomes or have access to a decent chunk of cash.
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