The economic changes that have swept over New Zealand in the last three years have been an unmitigated disaster for aspiring first home buyers.
While economists and other pundits will no doubt debate the merits or otherwise of our recent monetary policies for years to come, their effect on aspiring first home buyers has been disastrous.
Interest.co.nz's Home Loan Affordability Reports have been tracking the main measures of housing affordability for first home buyers on a month-by-month basis since 2004 and these clearly show that first home buyers are worse off now than they were three years ago.
And they are not just slightly worse off, their chances of buying a home of their own in September 2022 were substantially lower than they were in September 2019.
One of the biggest drivers of that change has been mortgage interest rates.
Interest rates aren't the only driver of the property market, but they are one of the most important because most property transactions are highly leveraged. So changes to interest rates, whether up or down, have an almost immediate impact on borrowing levels and prices.
In September 2019 the average two year fixed mortgage rate charged by the major banks was 3.50%.
Over the following 20 months the Reserve Bank pushed down interest rates until the average two year fixed rate hit a record low of 2.52% in May 2021.
From there interest rates have risen precipitously and the average two year fixed rate reached 5.47% in September this year. And it's likely to be onwards and upwards from there.
So what effect did that have on house prices?
Because first home buyers usually buy homes at the lower-priced end of the housing market, the Home Loan Affordability Report tracks the Real Estate Institute of New Zealand's lower quartile selling price.
That's the price point at which 25% of the properties sold each month are below and 75% are above, representing the bottom end of the market.
In September 2019 the national lower quartile price was $420,000, but falling mortgage rates fed a wave of irrational exuberance that washed over the housing market until the national lower quartile price peaked at $670,000 in November 2021.
Since then, rising interest rates have pushed the lower quartile price back down to $611,000 in September this year, but that's still up by $191,000 (+45%) compared to three years ago.
That means that in September 2019, a 10% deposit for a home purchased at the lower quartile price would have required $42,000.
By September 2022 that had increased to $61,100.
A 20% deposit on the same property would have increased from $84,000 to $122,200 over the same period.
Of course that means the amount of mortgage debt the first home buyer would have needed to take on to complete the transaction would have increased from $378,000 in September 2019 to $549,000 in September 2022 (with a10% deposit), or from $336,000 to $488,800 with a 20% deposit.
That combined with higher interest rates increased the amount of money they would need to set aside each week for the corresponding mortgage payments from $452 to $816 (+80.5%) with a 10% deposit, or from $348 to $638 (+83.3%) with a 20% deposit.
That wouldn't be so bad if incomes had kept pace with such a massive increase in costs, but of course they haven't.
The Home Loan Affordability Report tracks the estimated, combined, median after-tax pay for couples aged 25-29, if both are working full time.
In September 2019 such a couple would have been taking home $1685 a week between them and by September 2022 that would have increased to $1832 a week, up by $147 a week (+8.7%).
That pales by comparison to the extra $364 a week they would need to set aside for mortgage payments (with a 10% deposit), or the extra $290 a week they would need to find if they had a 20% deposit.
Another way of looking at those figures is that in September 2019, mortgage payments on a lower quartile home bought with a 10% deposit would have eaten up 26.8% of the take home pay of a typical first home buying couple.
By September 2022 that figure had risen to 44.5%.
If they had a 20% deposit, mortgage payments as a percentage of income would have risen from 20.7% to 34.8% over the same period.
So however you look at the numbers, the position of first home buyers has worsened considerably over the last three years.
What's even more worrying is that all of the figures quoted above are national figures.
The position of first home buyers in higher priced regions such as Auckland, Waikato, Bay of Plenty, Wellington and Nelson/Marlborough is even more precarious.
For example in Auckland the mortgage payments on a lower quartile-priced home purchased with a 10% deposit ($82,000) would eat up 58.9% of the median take home pay for 25-29 year olds.
That is not just making buying a home difficult, it is putting it will beyond the reach of people on average wages.
In Auckland, and to a significant degree in regions such as Waikato, Bay of Plenty and Wellington, home ownership is increasingly the preserve of the highly paid.
The three sets of tables below show the change in the main national affordability measures between September 2019 and September 2022, the main affordability measures assuming a 10% deposit in all of the main urban districts throughout the country as at September 2022, and the same measures assuming a 20% deposit.
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