A sharp improvement in home loan affordability over the last 15 months may mark a return to the more affordable housing conditions prevalent prior to 2021.
Interest.co.nz has been tracking the monthly movements in mortgage interest rates, lower quartile selling prices, and the median after-tax pay for couples aged 25-29, to measure changes in home loan affordability since 2004.
Mortgage payments are considered unaffordable when they take up more than 40% of a couple's after-tax pay.
The graph below shows what has happened to that affordability measure between August 2005 and October this year, nationally and in the Auckland region
The red line at the 40% mark is the point at which mortgage payments go from affordable to unaffordable for typical first home buyers with a 10% deposit.
Anything under the red line is affordable while above the red line is unaffordable.
What this shows us is at the national level, housing has been well within affordable limits for first home buyers apart from a brief period during the Covid pandemic. That's when the Reserve Bank pushed interest rates down sharply while reducing mortgage lending restrictions at the same time, leading to an immediate and unsustainable surge in house price inflation, from which the market is still recovering.
However, that brief period of unaffordability was quickly followed by an almost as steep improvement in affordability, as interest rates were normalised and house prices declined.
At the national level, housing returned to affordable levels for first home buyers in August last year and is continuing to improve.
The Auckland exception
However, as the graph shows, it's a different story in Auckland.
Housing in Auckland has been in unaffordable territory for typical first home buyers since November 2013, with the Reserve Bank's exuberant slashing of interest rates and lending restrictions during the pandemic supercharging the problem.
But even in Auckland, affordability has shown a dramatic improvement since the middle of last year as house prices and interest rates fell in tandem.
Although Auckland remains in unaffordable territory at the regional level, house prices and their corresponding mortgage payments at the lower quartile end of the market are already at affordable levels in Waitakere and Papakura, and are on the cusp of becoming affordable in Manukau and Franklin.
So the home ownership dream is getting back within reach in most parts of the country, even in Auckland.
The tables below give the main affordability measures for typical first home buyers with either a 10% or 20% deposit in all main urban areas throughout the country.
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