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Roost Home Loan Affordability Report was worse in central Auckland in April, but better elsewhere. Your experience?

Roost Home Loan Affordability Report was worse in central Auckland in April, but better elsewhere. Your experience?

By Bernard Hickey

Higher house prices in central Auckland worsened affordability in New Zealand’s biggest city to its worst level in 6 months in April, the Roost Home Loan Affordability report shows. 

But affordability improved in most other areas, including Wellington, where affordability in the Kapiti Coast and Porirua was significantly better. Invercargill took back the title of the most affordable city in New Zealand from Wanganui, while Queenstown and central Auckland were again the least affordable.

Prices remain more buoyant in central Auckland and some of the coastal and mountain resort areas, reinforcing signs this year of a two-speed housing market where reduced supply and inward migration are boosting activity in the central suburbs of the biggest cities, while provincial and fringe city areas remain subdued.

Interest rates were flat in April and the outlook is for the Official Cash Rate to remain steady until December this year or early 2012. Wages rose slightly, helping to boost disposable income for borrowing marginally.

First home buyer affordability worsened slightly in April because of a rise in cheaper house prices, but remains near its best levels in 7 years because of low interest rates.

Banks eager

Bank executives have commented over the last month they are keen to resume lending growth. Roost mortgage brokers report some banks are offering discounted rates and establishment fees to some borrowers to encourage home lending.

"Banks are eager to lend and are able on occasion to go the extra step to make a loan happen," said Rhonda Maxwell, spokeswoman for mortgage broking group Roost Home Loans.

Banks are offering loan to value ratios of up to 90 and 95% and are discounting establishment and legal fees in competitive situations, Maxwell said.

"First home buyers are seeing the best loan affordability ratios in seven years, particularly in areas where house prices are off their peaks," Maxwell said.

A young couple earning the median wage could afford to buy a first quartile priced house in April, with 21.4% of their disposable income required to service an 80% mortgage. This is up from 21.3% in March  and down from a June 2007 high of 35.1%.

The national median house price fell to NZ$360,000 from a record high NZ$365,000 in March. The first quartile house price rose to NZ$252,332 from NZ$250,000 in March. Prices outside of central Auckland, Auckland, Hamilton and the central Otago Lakes district were flat to lower. The Roost Home Loan Affordability report measures affordability nationally and regionally for individual income earners and households, taking into account median house prices, interest rates and incomes.

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 was 53.1% in April from 54.0% in  March. This was slightly worse than the 52.7% seen in January, which was the best level since April 2004. The worst level of affordability was 83.4% seen at the peak of the house price boom in March 2008 when  2 year mortgage rates were close to 10%.

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.

Interest rates low

Many home owners are still on fixed mortgages, but more new borrowers are choosing to float, given floating rates at around 5.75% are cheaper than average longer term fixed rates at around 6.2%. The Home Loan Affordability reports are now using the floating rate as most mortgages are now floating rather than fixed.

Affordability is difficult in 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, particularly those bidding for homes priced in the lower quartile.

Affordability for households with more than one income improved slightly because of the fall in interest rates. This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house was 34.9% at the end of April from 35.6% in March.

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 21.4% in April from 21.3% in March.

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)

Regional home loan affordability comparison:      
mortgage payment as a % of weekly take-home pay      
 
Apr-11
Mar-11
Apr-10
Apr-09
Apr-08
Apr-07
New Zealand
53.1%
54.0%
63.5%
56.3%
81.9%
80.7%
Northland
47.7%
54.2%
63.5%
53.3%
92.9%
80.1%
- Whangarei
41.7%
41.9%
53.9%
47.1%
78.6%
72.0%
Auckland
66.9%
65.8%
79.4%
68.1%
99.9%
97.6%
- Central
77.2%
72.1%
86.2%
71.7%
94.7%
106.5%
- North Shore
69.6%
72.3%
86.2%
74.4%
105.7%
105.0%
- South
66.9%
64.7%
77.3%
72.9%
96.9%
94.5%
- West
55.2%
59.3%
69.6%
60.1%
82.2%
81.2%
Waikato/BOP
49.2%
48.1%
60.2%
56.0%
79.1%
76.4%
- Hamilton
53.6%
49.4%
64.1%
57.2%
83.4%
81.0%
- Tauranga
52.3%
58.9%
73.3%
62.6%
89.3%
91.7%
- Rotorua
40.5%
36.7%
44.3%
48.2%
62.3%
57.8%
Hawkes Bay
45.2%
43.4%
55.6%
50.6%
73.1%
72.4%
- Napier
51.3%
46.8%
61.0%
53.5%
75.3%
77.1%
- Hastings
41.9%
41.7%
55.6%
50.6%
70.3%
71.4%
- Gisborne
40.3%
41.3%
47.8%
51.7%
63.1%
76.4%
Manawatu/Wanganui
35.1%
34.9%
44.6%
39.9%
61.9%
58.3%
- Palmerston North
39.9%
39.1%
50.9%
42.5%
65.2%
66.1%
- Wanganui
33.9%
29.6%
42.2%
35.0%
59.6%
44.0%
Taranaki
44.6%
43.3%
54.3%
48.9%
69.6%
69.7%
- New Plymouth
52.1%
45.8%
63.1%
53.5%
79.0%
77.2%
Wellington region
52.7%
56.7%
64.3%
56.4%
82.5%
81.1%
- City
57.5%
58.2%
70.0%
61.4%
86.1%
86.9%
- Hutt Valley
49.2%
49.8%
59.6%
51.7%
71.1%
70.4%
- Porirua
56.0%
60.1%
64.7%
59.8%
85.9%
80.0%
- Kapiti Coast
47.1%
53.4%
65.7%
58.4%
80.1%
78.6%
Nelson/Marlborough
54.8%
53.4%
66.7%
57.5%
87.7%
84.1%
- Nelson
55.0%
53.5%
69.7%
54.4%
82.7%
78.1%
Canterbury/Westland
47.2%
44.3%
57.3%
50.6%
73.9%
74.8%
- Christchurch
52.6%
53.0%
65.0%
55.8%
80.9%
83.3%
- Timaru
38.5%
37.1%
49.8%
36.7%
63.6%
54.4%
Central Otago Lakes
76.7%
71.1%
83.6%
72.2%
116.5%
107.3%
- Queenstown
83.3%
82.8%
87.6%
76.0%
132.6%
129.6%
Otago
37.6%
34.6%
45.8%
39.9%
60.3%
56.6%
- Dunedin
43.9%
40.1%
51.8%
46.5%
65.8%
68.3%
Southland
30.3%
29.2%
35.3%
34.1%
56.0%
41.7%
- Invercargill
30.6%
32.1%
39.9%
35.6%
57.6%
46.0%

 

No chart with that title exists.

 

 

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26 Comments

Auck up 8.4% in the last year.

 

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Yes SK and they are only continuing one way and that is up

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Yes SK and they are only continuing one way and that is up

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Good luck, chaps! Even in Australia, where it's also 'different' they are begining to realise the game is over. Remind me again, where are the funds are coming from to fund that growth in property that you see?!

"Like the Wage Cost Index yesterday, wages are not accelerating and in fact, in this measure, in the big employment sectors of Retail Trade, Accommodation, Food Services and Admin Services they actually went backwards. Health care which is another big employer was up only 0.5% .... Overall it is a picture of decelerating wage gains not accelerating..."

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But Nick, property only goes up, they're not making any more of it! Haha

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After all your nonsense the actual result is a yearly increase of 8.4%

 

 

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SK. We've lived in Auckland for 16 months now. During that time my rent has fallen $50 per week ( it was 'adjusted' when we came off a 12 month contract in January, and the block had too many empties, and didn't need another one, that we were going to make for them! And, yes, we probably paid too much to start the run off with....c'est la vie), and the asking price of this very unit has fallen from $765k to $695k. That's just one example, and it's not up 8.4%!

But regardless, tell me where the money is going to come from to push up property prices, other than those further up the tree, trading down?

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That's a good point - it illustrates how capital gain has all been made by owner occupiers and not in rental properties.  Therefore it can not be landlords who are responsible for the increases in house prices, but owner occupiers so trying to control prices by targeting landlords is completely futile and missing the point.

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Bob, ( great things, these 'comment reply' alerts!). 'Rental properties' ( landlords) have made the capital gains, and the prices rise, because of the competition that they have placed on owner/occupiers for the very same product. ie; the same house! How can an owner/occupier expect to win a house if they have to compete against the tax rebates that investors gets, other than by bidding the price up? ( they can't offset their interest bills etc against their PAYE - that's a price-paid determinant?) Take away the tax incentives, and the owner/occupier is bidding against...another of his ilk, not a tax supported 'investor'. Hence the current logic of owning 'investment properties'; someonone else does the 'work' for you!

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But as you yourself pointed out your rental property has droped in value by like 15% at the same time as the average house has increased by over 8% so rentals aren't where the capital gains are occuring (you said it - not me).  This makes sense as most capital gains have occured in suburbs where there's no renters and least capital gains where there's the most renters.

In the real world owner/occupiers are not generally in the same market as PI's.   No one is paying $800K to get $800 a week in rent or $600K to get $600 a week rent.  If your comment reflected reality nicer suburbs would be full of investors using their 'tax advantages' to outbid owner/occupiers in the areas with biggets capital gains - but they are not.  Big capital gains suburbs = owner/occupier suburbs and vice versa.

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SK, just keep holding and leveraging. Please.

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What's the point of your single example.

Across all of Auckland Central - for a whole years sales - there has been an 8.4% value increase.

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Just shows how many ignorant/financially illiterate people there are out there.

If you've been told that something is 20% overvalued why would you still pay the overvalued price?

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You would have said a house in Auck Central was over valued a year ago - now it's worth 8.4% more.

Can you see why some people might pay what you think is an 'over valued' price?

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It was overvalued a year ago, now it's overvalued more.

If all the buyers sat back and waited, asking prices would have to adjust, and it wouldn't be upwards.

As I said, too many ignorant/financially illiterate people out there.

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meh

Because many people with cash on hand fear the devaluation of the money will be more than paying for a still overpriced property and think property is better than money (losing value) in the bank.  My guess.

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It all depends who told you the thing was 20% overvalued.

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That's the point, SK! If my unit had 'gone though' it would have reflected in the 'higher' ( your 8.4%) figures, even though it has actually...dropped! Likewise, as even any realistic real estate agent will tell you, the higher value properties are the ones that are selling up! Which ever statistical average you look at, whether it be mean, median or mode, the sale of high priced properties drags up those averages.

People aren't selling up the 'top end' stuff, if they think prices are going to go higher. Would you? And I ask you again: Where is the money going to come from?

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Are you saying that values have increased 8.4% in the last year,

because houses are decreasing in value?

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No. I am saying that the statistics show an increase in the price at which property in Auckalnd is transacting at. That is the result of  higher property sales. My suggestion to you is ~ that higher priced properties are selling for less than they were, but that will still show up as a higher staistical figure. Ask Olly Newland if you don't believe me! He seems to have been picking up properties for >40% less than they were originally on at!

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.

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Do you feel like you are clutching at straws?

The mild increase in turnover is across the full range - and with no new skew to the top end. Therefore your suggestion cannot be true.

The sample has not changed - neither has your bizzaro logic.

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My bizzaro logic allowed me to keep an extra $300 in the bank this week, that would have otherwise gone out to a bank in interest payments. And at these low deposit rates, that's a low point for me! So after several years of renting here and elsewhere, I'm quite happy that my logic does in fact work. It's that same logic that tells me that owning property is not the thing to do now, or was 3 years ago. I can't see that changing for your better, any time soon.

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Stick grimly to your guns in spite of the facts - heres to another 8.4% for the coming year.

 

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And the money is going to come from....??? to make that happen!

This by the way, is the last thing you need to read in the papers one morning !

"Is QE setting markets up for a crash?  "

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SK I think you meant Auckland central was up 8.4% in one year.

All of Auckland was only up 2% despite massive OCR cuts and a supposed housing shortage. That's not very promising

Central Auckland's growth was distorted by more higher end sales

nothing to get excited about mate! 

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