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Roost Home Loan Affordability Report shows slight worsening in May as house prices rise, but activity strong on cheap loans and short supply in Auckland, ChCh

Roost Home Loan Affordability Report shows slight worsening in May as house prices rise, but activity strong on cheap loans and short supply in Auckland, ChCh

By Bernard Hickey

Home loan affordability weakened slightly in May as the national median house price bounced back to near record highs. However, record low interest rates continue to make housing affordable for double income households outside of central Auckland and Christchurch where supply shortages are driving house prices higher.

Hot competition between the banks through May and into June increased the bargaining power of many homebuyers, sparking a lift in home buying and borrowing activity.

 The Roost Home Loan Affordability monthly reports show affordability for young working couples remains near its best levels in almost eight years, although affordability for home buyers in central Auckland, Wellington and Christchurch remains difficult.

“Borrowers looking for a good deal are able to negotiate hard between banks when they use a broker,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from

“Some banks are offering discounted interest rates and are waiving some fees to some customers, which is improving affordability too,” Dennehy said.

Banks cut their fixed mortgage rates through May and into early June as wholesale interest rates fell. However, the rate cuts dried up in mid June as wholesale interest rates bounced.

Financial markets are now expecting the Official Cash Rate to be flat at 2.5% over the next year, although the Reserve Bank’s forecasts imply a small increase from mid-2013. Economists see the OCR rising from March 2013 to a peak of 4% over the next couple of years.

Affordability worsened slightly nationally in May as the median house price for all of New Zealand rose to NZ$369,000 from NZ$365,000 the previous month. This increased the proportion of single after tax income needed to service an 80% mortgage on a median house to 53.6% in May from 53.1% in April, the Roost Home Loan Affordability report shows

Household affordability for first home buyers worsened to 21.9% of income from 21.7% the previous month, but remains around its best levels since late 2004. First home buyer household affordability is measured by calculating the proportion of after tax pay needed by two young median income earners to service an 80% home loan on a first quartile priced house.

Affordability improved for Northland, Hawkes Bay, Wellington and Central Otago Lakes because of lower median house prices, but worsened in Auckland, Waikato/Bay of Plenty, Taranaki and Otago due to higher median prices. See the main report for links to regional reports.

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 in their regions and cities.

Affordability has generally been improving since December 2009 as house prices have flattened out and interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again.

More than 61.7% of home owners are now on floating mortgages, although there has been a surge in fixed rate borrowing in recent months as banks pared their rates. Advertised floating rates at around 5.75% are higher than 1 year fixed rates at around 5.3%, but many banks are offering ‘unofficial’ floating rates of around 5.3% to solid customers with high levels of equity that threaten to leave their bank. The Home Loan Affordability reports use the advertised floating rate.

Affordability for households with more than one income worsened slightly in May because of the higher median house price. This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house rose to 35.3% from 35% in April.

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 first home buyer household 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.

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With the reduction in New building numbers being reduced now by half of what the department of statistics determine are requires each year.
The lag in new supply is massive, developers have been leaving New Zealand along with over 2000 builders.
It's a simple supply and demand equation, by cutting supply in half demand will ioncrease.
One article this morning said 120 people came to one open home. those numbers havent been seen since 2007.
Unless New Zealand takes practical steps to build enrty homes, affordable homes, 1st homes then get ready to que for a house and book in your builder early.
Next months sales price average will be higher followed by increase after increase layered on by councils and rising regulatory costs.

Yeah I've pretty much given up on buying my first home in Auckland, a lot of my mates have too, thats why their leaving.

MK,  it is quite possible that Auckland will be a very expensive city for a very long time.  Condolences if  your heart's desire to purchase in Auckland has been extinguished. But one door closing is always another opening, and how you live is always more relevant than where you live.  Good luck on your quest for an affordable abode for you and yours. 

Wise words if ever I heard them Vera, thanks :D

Agreed, it's why I never arrived in Auckland, even with the offer of a good job. It just didn't make any financial sense.

.... that's why they're leaving ..."
By working on your spelling & grammar, then you can improve your soft skills - then you can increase your earnings/salary  -   then you can save & buy your 1st house.
Plenty of cheap houses in the Auckland area  -  if you're not in a higher earning bracket then get out of Auckland, find an equivalent earning job in the provinces then buy a house.  Who said you deserve to live in Auckland?  
It's not "New Zealand's" responsibility to provide you with housing  -  you were born in a developed country, you have a brain & work capacity  -  work it out yourself how to get into home ownership.    Maybe forget about trying to confuse yourself solving macroeconomic problems....
And stop reading all the anti-property spruikers opinions ....

Mmm.... after reading that, the word 'arsehole' comes to mind.

If you are trying to look like an arrogant slob you did a great job

yeah right......funny but ive found I earn far more with technical know how than written...and Ive noticed those with no abilities bar with words try to step on others....insecurity springs to mind.....
and dont read it as anti-property, its not its anti-bubble and anti-risk..........just remember this time its different............
In fact given your posts....seems to go beyond insecurity, almost fear....  From my perspective I see a depression comg and those with no real skills beyond signing up for more debt to gamble with on property will be the farm labourers of the future....carrot pullers......

Hell would freeze over springs to mind.

In my humble opinion, the Christchurch residential property market is barking mad and unreadable right now.  Each house is so specific: whether the land is TC2 or TC3; if TC3 is it badly liquefacted or laterally spread or basically fine; the degree of damage, under-cap or over-cap and whether it's still comfortably liveable; whether a new buyer can insure the house ( and thus contents); whether it was red-stickered due to rock-roll and is now green (discounts the value because there is still the chance). Along with this the CCC has recently changed the flood plains. 
I am shopping right now and am rapidly coming to the conclusion that a bird in the hand, though the house is too small for my family's needs, is worth hanging on to. I have a good idea of its problems, and an addition may be the best option (apart from a very warm beach and winning Lotto). Anecdotally I hear of  many thinking likewise. What are the Christchurch commenters' views?

Still too much risk if you cannot financially deal with a dislocation, if you can then west can allow for windfall gains, not the upside that you could obtain from June - sept last year thou.

Auckland house increases in value by 43% in one year:

They spent 'about' $40k on it before the sale and agents would have taken $25 or so therefore gain is more like 31% - Herald vastly exagerates in these stories. 

Nice tax free capital gain eh!  

The old Rees-Mogg article noted four essential conditions for a Housing Cartel.

  • Land Banking, which concentrates profits upon few owners, aided and abetted by stoopid Councils and their zoning decisions.
  • New land supply leaked out slowly, after years of adversarial subdivision planning and resource consent processes
  • Licensing of housebuilding, ostensibly to preserve standards, but in effect cutting out worthy, cheap, sweat-equity.
  • Now tip in some rilly, rilly cheap (in historical terms) credit.

Ka-ching.  Ye've gotten yerself a classic Housing Cartel, and prices go through the roof.
Now stop and ask:  does this apply to Godzone?
Land Banking - check.
Clueless and adversarial planning and zoning processes.  Check.
Licensing of building.  Check - the LBP's are amongst us!
Cheap credit - check.
Zoom!  Lookit them prices fly!  Ye could say they are Roosting in the Rafters!
And how ter get out of this deep, deep hole?
Well there's only two ways - the hard way and the really, really hard way.
And Ruru, against the Clueless City Council, there is no defence.  As Rilke said many moons ago, against stupidity, the Gods themselves rail in vain.
Try Selwyn, Waimak, Ashburton or Hurunui DC's instead.  They're markedly less deluded and grasping than the CCC.

Yes and the govt would like to consolidate the lot...

Waymad - that's wrong on several levels.
Sure, folk buy and bet on rising value - as they do with shares, collectables, you'd have to eliminate the 'free market' to eliminate land speculation. 'Releasing enough' (your concept, not mine - it's flawed) land wouldn't do anything to that, merely increase the rate at which 'development' happened. Check - how many square metres per head do we build now, compared with, say, 1930? We'd just do 5 acres per house, and the developers would still want to 'grow'.
Comments like stoopid are emotive, and unquantifiable. They say a lot about the maker of them, but nothing else.
Planning laws, zoning and resource constraints are all - if you have the ability to se a bigger picture - the representation of competition within finite limits, and Council needs to ration activity in the face of exponential logistics demand. If we are to survive as a species, we need to stay within our habitat boundaries. We aren't doing that now (unsustainable energy systems, unsustainably increasing water demand, no accounting physical inputs/outputs) and either we do so voluntarily, or old Ma Nature will do it for us.
Licensing - I agree there. Our society (you miss this one) places most of it's 'value' on it's ownership of dwellings on bits of land. Not surprising, and not surprising that fear of reduction in that 'value', drives back-side covering which is reflacted in laws. Not surprising that those laws reflect lobby-pressure (as with MB looking to secure a premium-charging exclusivity). Only a society with spare energy, can indulge in artificial controls.
  Now we are at the point where incomes will increasingly fail to match expectations, expect laws to be increasingly flouted, leading to watering-down, then abandonment.
Cheap credit?  That's all over Rover. The growth-based fiscal system just doesn't know it's dead yet. Too many economics-trained folk in the game - all taught that resources are unlimited. It's not that CEO and dherence to Libour that are the problem, it's the charging of interest withing a finite system, at all. The Barclays thing is a storm in a teacup on the upper deck - even as it slips off the endd of the table.
What will Real Estate be 'worth' when cocntantly reducing incomes become factored in? Interest rates?
How long can Ashburton sprawl onto the Plains, and the dairy output concurrently increase, to support the folk who live in the houses that sprawl.....   that's the 'stoopid'.

"And how ter get out of this deep, deep hole"  we get tipped into a deeper one, its called a depression...
All the changes like bigger houses and less living in them that has
"progressed" over the last 40 odd years reverses....