Roost Home Loan Affordability report shows affordability dip in August, but outlook better while interest rates stay lower for longer

Roost Home Loan Affordability report shows affordability dip in August, but outlook better while interest rates stay lower for longer

By Bernard Hickey

The Reserve Bank’s lowering of its interest rate forecasts has improved the outlook for home loan affordability through late 2011 and into 2012 as house prices remain stable in most cities and incomes edge higher.

The Roost Home Loan Affordability report for August shows a slight deterioration in August from July because the national median house price nudged higher, but affordability is near its best levels since early 2004 because of record low interest rates.

Last week the Reserve Bank forecast short term interest rates would rise around 1.5 percentage points over the next year, which is lower than its previous forecast for a rise of about 2 percentage points. The bank said slower global growth, a delayed Christchurch rebuild and the dampening effect of a high New Zealand dollar were factors lowering the interest rate outlook.

Economists also pushed back their forecasts for an Official Cash Rate hike to around March 2012 from December, and some suggested those borrowers thinking of fixing should think again about floating.

“The change in the interest rate outlook improves the outlook for home loan affordability too,” said Rhonda Maxwell, spokeswoman for mortgage broking group Roost Home Loans.

“It changes the equation for home buyers over the next year or two and may prompt potential home buyers to re-do their calculations,” Maxwell said.

“Banks remain keen to lend and often offer deals through mortgage brokers that can further improve those equations,” she said.

Affordability improved in central Auckland, North Shore, Central Wellington, Hutt Valley and West Auckland in August because of a fall in median house prices, the Roost Home Loan Affordability report shows

Higher house prices saw affordability worsen somewhat in South Auckland, Porirua and Central Otago Lakes region. Wanganui remains the most affordable city in the country, while Queenstown is the least affordable for those on a median income. See the main report for links to regional reports.

A young couple earning the median wage could afford to buy a first quartile priced house in August, with 20.7% of their disposable income required to service an 80% mortgage. This is up from 20.6% in July, down from 24.7% in August a year ago and down from a June 2007 high of 35.1%.

The national median house price rose to NZ$355,000 from NZ$345,000 in July and is below a record high of NZ$365,000 in March. The first quartile house price was flat at NZ$245,000 in August.

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 51.5% in August from 50.2% in July. 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 generally been improving since December 2009 as house prices have flattened out and interest rates have fallen.

More than 50% of home owners are now on floating mortgages and most new borrowers are choosing to float, given advertised floating rates at around 5.75% are cheaper than average longer term fixed rates at around 6.2%. The Home Loan Affordability reports use the floating rate.

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 worsened slightly in August because of the rise in median house prices. This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house was 34.0% at the end of August, up from 33.1% in July, but down from a record high of 54% in November 2007.

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 rose to 20.7% in August, up from 20.6% in July but below a record high of 34.9% in November 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)

Regional home loan affordability comparison:      
mortgage payment as a % of weekly take-home pay      
 
Aug-11
Jul-11
Aug-10
Aug-09
Aug-08
Aug-07
New Zealand
51.5%
50.2%
60.2%
58.7%
73.4%
82.6%
Northland
48.8%
43.8%
59.3%
55.4%
69.4%
81.0%
- Whangarei
40.1%
40.2%
53.9%
45.8%
63.0%
76.1%
Auckland
62.4%
64.2%
72.7%
72.1%
88.3%
99.2%
- Central
62.7%
67.4%
80.9%
79.6%
91.5%
103.9%
- North Shore
68.3%
71.0%
78.5%
79.2%
97.0%
109.1%
- South
66.3%
64.6%
74.9%
74.2%
88.1%
99.7%
- West
55.0%
56.1%
63.9%
62.4%
76.1%
82.6%
Waikato/BOP
49.2%
47.3%
59.3%
57.6%
74.5%
81.1%
- Hamilton
51.4%
52.4%
61.7%
61.3%
76.7%
86.9%
- Tauranga
57.0%
53.5%
67.3%
64.0%
80.0%
93.8%
- Rotorua
31.2%
39.7%
52.7%
46.8%
63.9%
60.1%
Hawkes Bay
40.8%
45.1%
53.0%
48.4%
65.9%
72.7%
- Napier
45.3%
46.3%
59.7%
51.0%
68.5%
75.1%
- Hastings
40.4%
44.0%
52.5%
48.7%
60.5%
71.7%
- Gisborne
41.3%
37.8%
47.0%
59.1%
77.2%
80.7%
Manawatu/Wanganui
34.5%
33.8%
42.8%
38.8%
55.9%
55.6%
- Palmerston North
39.2%
41.5%
44.8%
43.2%
58.0%
64.2%
- Wanganui
27.6%
25.8%
43.6%
35.7%
45.5%
47.3%
Taranaki
42.2%
40.8%
49.0%
53.1%
60.5%
66.6%
- New Plymouth
47.0%
47.1%
61.7%
60.5%
71.9%
82.6%
Wellington region
48.9%
49.0%
63.2%
61.8%
77.1%
83.6%
- City
54.9%
58.2%
65.1%
71.3%
78.2%
83.7%
- Hutt Valley
42.5%
44.5%
54.8%
50.6%
64.3%
71.1%
- Porirua
57.5%
45.3%
68.6%
74.1%
79.3%
85.2%
- Kapiti Coast
49.6%
50.4%
63.2%
54.3%
64.1%
85.5%
Nelson/Marlborough
50.8%
49.5%
62.4%
60.9%
80.1%
86.5%
- Nelson
49.9%
50.8%
62.4%
57.2%
78.4%
92.8%
Canterbury/Westland
48.7%
47.4%
56.2%
51.7%
66.6%
76.2%
- Christchurch
53.1%
55.8%
62.0%
57.5%
72.8%
83.7%
- Timaru
37.2%
37.3%
39.4%
45.0%
59.8%
51.6%
Central Otago Lakes
68.3%
64.6%
84.2%
80.2%
111.7%
120.8%
- Queenstown
77.7%
77.5%
96.3%
93.4%
114.6%
148.8%
Otago
37.9%
36.0%
43.0%
43.5%
55.3%
60.6%
- Dunedin
43.9%
41.5%
49.2%
52.2%
62.6%
65.4%
Southland
30.4%
28.5%
35.6%
36.3%
46.1%
45.6%
- Invercargill
33.5%
30.8%
40.5%
40.1%
47.3%
49.8%

 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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6 Comments

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You're young..you saved a few grand...what's stopping you from taking on a mortgage and buying one of these cheap porperties!

Well for a start the interest rates will rise again...and you will be stuffed.

The longer you wait the more you save even if English and Bollard are debasing the Kiwi$

Property prices are not going to explode higher because YOU are the only buyers and you are not buying.

Prices are far more likely to fall, especially in your sector.

Why be a slave to the bank when you can rent!

just think how many rental properties our dairy farmers can buy with their BIG pay out!

In life you are going to pay someone. Either the IRD (tax) and I am yet to find anyone who gets a great return from them, or a bank (interest) for a property and if done wisely the later tends to provide a very nice return thank you.

The NZ herald runs this article with the heading "Record low rates drive home affordability".

These reports have nothing to do with home affordability - they are purely about loan affordability.

The houses themselves are still overvalued and unaffordable. 

 

Wolly is right, why buy a house when you can rent.  I have a number of rentals and I also want renters for Me; the more the merrier!  Good advise Wolly.

Yep it's set to be a rental nation for sure. Pity the landlords when the socialists slither back in....that snake will bring a rent freeze.