Rising house prices are pushing the dream of home ownership further out of reach for aspiring first home buyers, in spite of recent cuts to mortgage interest rates.
According to Interest.co.nz's Home Loan Affordability Reports for November, rising prices at the bottom end of the market have more than made up for falls in mortgage interest rates since the Reserve Bank cut the Official Cash Rate (OCR) from 1.5% to 1.0% in August. This means potential first home buyers are now worse off than they were just before the OCR was cut.
The reports show that the Real Estate Institute of New Zealand's national lower quartile selling price (the price point at which 25% of sales are below and 75% are above, (traditionally the part of the market that is of most interest to first home buyers), has risen from $401,900 in July, before the OCR was cut, to $450,000 in November. That's a rise of $48,100, or 12%, in four months.
The rise in lower quartile prices has been nationwide, with all regions posting prices that were substantially higher in November than they were in July and record highs being set in in Northland, Auckland, Waikato, Bay of Plenty, Taranaki, Wellington, Canterbury and Otago.
That has more than offset the benefits of lower mortgage interest rates, with the average of the two year fixed mortgage rates offered by the major banks dropping from 3.81% to 3.48% between July and November.
That means the mortgage payments on a property purchased at the national lower quartile price would have increased from $351.31 a week in July to $385.81 in November, an extra $34.50 a week.
Not only are mortgage payments increasing in dollar terms, they also increasing as a percentage of typical first home buyers' incomes.
The Home Loan Affordability reports track the median after-tax pay of people aged 25 to 29. In July this year the mortgage payments on a home purchased at the national lower quartile selling price would have eaten up 21.8% of their take home pay.
By November that figure had risen to 23.23%, representing a significant decline in affordability.
And of course rising prices also increase the size of the deposit first home buyers need to scrape together to buy a home, which combined with higher mortgage payments push their goal of home ownership further out of reach.
This suggest that the benefits of the most recent cuts in mortgage interest rates would have fallen entirely to people who already owned properties, who would see their property values rising at the same time as their mortgage payments fall.
But they appear to have done hopeful first home buyers no favours at all.
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Note: A technical issue has prevented the monthly updating of the published Home Loan Affordability reports for individual districts. These are expected to be updated and available on this site around the second half of January.
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