The home ownership dream is likely well out of reach for typical first home buyers on average pay in most regions of the country, despite significant house price falls over the last 15 months.
The Real Estate Institute of New Zealand's national lower quartile selling price peaked at $670,000 in November 2021 and has since fallen back to $565,000 in February this year. That's a decline of $105,000 (-15.7%).
In Auckland, the country's largest housing market by far, the REINZ's lower quartile price has dropped back from $966,000 to $779,000 over the same period, a decline of $187,000 (-19.4%).
The lower quartile price is the price point at which 25% of sales are below each month and 75% are above, representing the lower end of the market which is of most interest to typical first home buyers.
Although the recent price falls at the lower end of the market have been substantial, they have only retreated back to where they were at the beginning of 2021. And first home buyers are likely to be significantly worse off now then they were then because mortgage interest rates are much higher.
In February 2021 the REINZ's national lower quartile selling price was $565,000, exactly the same as it was in February 2023. But the average of the two year fixed mortgage rates offered by the major banks back in February 2021 was 2.53%. By February 2023 that had risen to 6.45%.
That means a 20% deposit on a home purchased at February 2023's national lower quartile price would have been $113,000, unchanged from February 2021. And the amount that would need to be borrowed for an 80% mortgage would also be unchanged at $452,000. But the amount of money that would need to be set aside for the mortgage payments would have increased from $413 a week to $656 a week. That's up by $243 a week (+59%), leaving first home buyers significantly worse off than they were two years ago.
Interest.co.nz estimates that the combined, median after-tax pay for couples aged 25-29 who are both working full time was $1739 a week in February 2021. That means the payments to service an 80% mortgage would have eaten up just under a quarter (24%) of their take home pay.
Two years later in February 2023 and interest.co.nz estimates the median after-tax pay for typical first home buyers would have increased to $1871 a week. That's up by $132 a week (+7.6%), which means mortgage payments would now be chewing up 35% of typical first home buyers' take home pay.
Their situation would be even worse if they were unable to scrape together the $113,000 needed for a 20% deposit.
If they had $56,500 for a 10% deposit, they would need to borrow $508,500 for a 90% mortgage, which means the borrowers would almost certainly be paying a significantly higher interest rate for a low equity loan.
That would have pushed the mortgage payments on a lower quartile-priced home up from $542 a week in February 2021 to $832 a week in February 2023, up by $290 a week (+54%).
Which means the amount of their take home pay typical first home buyers would need to set aside to service a 90% mortgage would have increased from 31% in February 2021 to 45% in February 2023.
Those figures are bad enough, but they are based on buying a home at the national lower quartile price.
The situation is considerably worse for typical first home buyers in centres such as Auckland, Waikato, Bay of Plenty, Hawke's Bay, Wellington and Nelson/Marlborough, where house prices are significantly higher.
In Auckland, the amount of money that would need to be set aside to service an 80% mortgage on a lower quartile-priced home has increased to $904 a week in February 2023 from $604 a week in February 2021.
That has increased the amount of take home home pay that would be gobbled up mortgage payments for typical first home buyers in Auckland from 32% to 47% over the last two years, assuming they had a 20% deposit.
If they only had a 10% deposit and needed to borrow 90% of the lower quartile price in Auckland, the mortgage payments would have increased from $791 to $1148 a week over the same period, taking up 60% of their take home pay in February 2023, up from 45% in February 2021.
The tables below show the main affordability measures with both a 10% and 20% deposit for all of the main urban districts throughout NZ.
These show that in spite of recent price falls, the amount required for a 20% deposit on a lower quartile-priced home in February 2023 was more than $100,000 in all regions of the country except Manawatu/Whanganui, Taranaki and Southland while Otago was exactly $100,000.
This leaves typical first home buyers on average wages between a rock and hard place, because if they opt for a low equity loan with a 10% deposit they will be unlikely to afford the resulting mortgage payments.
So they are caught between trying to save enough for a deposit which is out of reach, or take on a mortgage which is beyond their means, something the banks are unlikely to agree to.
Unfortunately, that means home ownership in much of the country but in the upper North Island and Wellington in particular, is largely the preserve those with access to a decent amount of cash, perhaps with the help of mum and dad, or the highly paid.
Those on average wages who don't have a helping hand to stump up a 20% deposit are likely to be left out in the cold.
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