By Bernard Hickey
Home loan affordability improved for the third consecutive month in September to its best in a year and is now back at levels last seen in December 2004, the Roost Home Loan Affordability report shows.
A slight fall in average bank fixed mortgage rates helped improve affordability for buyers in most parts of New Zealand as house prices remained flat and incomes nudged higher, the monthly report shows.
Affordability is set to improve significantly again in October because of a NZ$29 per week improvement in median after-tax income in the wake of personal income tax cuts.
House prices are flat to falling in what economists describe as a ‘buyers market.’
The Reserve Bank is now expected to leave the Official Cash Rate on hold until March 10 as slower economic growth here and overseas moderates any underlying inflation pressures.
The national median house price was flat at NZ$350,000 in September and is now down 3% from a record high of NZ$360,500 in March. The average two year mortgage rate fell to 6.73% in September from 6.79% in August as the economic growth outlook deteriorated.
The Roost Home Loan Affordability report measures the affordability nationally and regionally for income earners and households, taking into account median house prices, interest rates and incomes.
“Home buyers have the wind at their backs as they head towards summer. Interest rates, house prices and incomes are all moving in their direction,” said Roost spokeswoman Margaret Smith.
“Affordability is back now at levels last seen in late December 2004 before the boom in house prices because of improving incomes and lower interest rates ,” Smith said.
Northland affordability improved substantially because of lower house prices. Whangarei is now among the most affordable cities. It is cheaper than Napier and New Plymouth.
Queenstown remains the most expensive area in the country, although central Auckland has worsened again as prices rise in its ‘micro-climate’ of leaky homes and foreign buyers.
Invercargill has taken back the mantle of the most affordable city in the country from Timaru after a substantial drop in median prices in September. Weather may have been a factor.
Hutt Valley affordability has deteriorated in the last month, as has the Wellington City area, but Kapiti Coast and Porirua improved.
Affordability has been improving since December 2009 as house prices have flattened out and interest rates have fallen, the monthly measure calculated by interest.co.nz in association with Roost found.
Most home owners are still on fixed mortgages, but more borrowers have chosen to float in the last year, given floating rates at around 6.2% are cheaper than average longer term fixed rates at around 6.7%. However, the gap has closed over recent months, making the fixed vs floating decision more evenly balanced.
The Roost Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80% mortgage on a median house improved to 58.1% in September from 58.5% in August and is at its best level since September 2009.
Home loan affordability was at similar levels as in December 2004.
This figure would have been even better at 56.4% if new tax rates to be applied from October 1 had been used because of a NZ$29 rise in after tax weekly incomes.
Affordability hit its worst level of 83.4% in March 2008 just after house prices peaked and 2 year mortgage rates were close to 10%.
Many home buyers moved early in 2009 to take advantage of lower interest rates and look for bargains, which improved the number of houses sold and raised prices.
But house sales volumes have weakened in recent months as tax changes in the May 20 budget and softer economy have affected sentiment and activity. The Christchurch earthquake and South Island storms also dampened activity in September.
Affordability is difficult in the central areas of Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but homebuyers in smaller provincial cities will find home ownership much more affordable. Households with two incomes are also in a stronger position.
Affordability for the typical first-home-buyer improved significantly to 48.8% in September from 49.9% in August to its best level since January 2009 as the first quartile house price fell to NZ$242,500 from NZ$245,875 in August. It is now down from a March peak of NZ$257,500.
Meanwhile, affordability for households with more than one income improved to its best levels since September 2009. This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house fell to 38.9% in September from 39.2% in August.
This measure assumes one median male income, half a median female income aged 30-35 and a 5 year old child that receives Working-for-Families benefits. Any level over 40% is considered unaffordable for a household, whereas any level closer to 30% has coincided with increased buyer demand in the past.
The survey’s measure of a ‘standard first-home-buyer household' found the proportion of after tax income needed to service the mortgage on a first quartile home fell to 23.5% from 24.2% in August. This measure peaked at 35% in June 2007.
This measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.
Full regional reports are available below:
- New Zealand (159kb .pdf)
- Northland (159kb .pdf)
- Whangarei (159kb .pdf)
- Auckland region (159kb .pdf)
- Auckland Central (159kb .pdf)
- Auckland North Shore (159kb .pdf)
- Auckland South(159kb .pdf)
- Auckland West(159kb .pdf)
- Waikato and Bay of Plenty (159kb .pdf)
- Hamilton (159kb .pdf)
- Tauranga (159kb .pdf)
- Rotorua (159kb .pdf)
- Hawkes Bay and Gisborne (159kb .pdf)
- Napier (159kb .pdf)
- Hastings (159kb .pdf)
- Gisborne (159kb .pdf)
- Taranaki (159kb .pdf)
- New Plymouth (159kb .pdf)
- Manawatu and Wanganui(159kb .pdf)
- Palmerston North(159kb .pdf)
- Wanganui(159kb .pdf)
- Wellington region (159kb .pdf)
- Wellington City (159kb .pdf)
- Wellington Hutt Valley(159kb .pdf)
- Porirua (159kb .pdf)
- Kapiti Coast (159kb .pdf)
- Nelson and Marlborough (159kb .pdf)
- Nelson (159kb .pdf)
- Canterbury (156kb .pdf)
- Christchurch (156kb .pdf)
- Timaru (156kb .pdf)
- Central Otago Lakes (159kb .pdf)
- Queenstown (159kb .pdf)
- Otago (159kb .pdf)
- Dunedin (159kb .pdf)
- Southland (159kb .pdf)
- Invercargill (159kb .pdf)
The Regional reports for First Home Buyers can be found here.
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