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Record high house prices worsen affordability in June, but still near best levels in 8 years on record low interest rates, Roost Home Loan Affordability report shows

Record high house prices worsen affordability in June, but still near best levels in 8 years on record low interest rates, Roost Home Loan Affordability report shows

By Bernard Hickey

Home loan affordability worsened in June as the national median house price rose to record highs, however record low interest rates continue to make housing affordable for double income households outside of central Auckland and Christchurch.

Housing supply shortages in central Auckland and Christchurch have powered a surge in house prices this year.  An intensification of competition between banks has also boosted housing market activity as the outlook for interest rates remains subdued at current lows.

 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. See the regular reports here and the first home buyers' reports here.

Banks are offering a variety of discounted fixed mortgage deals that include discounted legal fees, lower interest rates for borrowers with high equity and, in some cases, the discounting of break fees. First home buyers are also dipping into their KiwiSaver funds for deposits and obtaining high loan to value ratio loans.

“Mortgage borrowers are in a strong position to negotiate with their banks through a broker,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from

“Banks are offering various types of discounts to various types of customers so it helps to have a mortgage expert help borrowers through the maze ,” Dennehy said.

Banks cut their fixed mortgage rates through May and into early June as wholesale interest rates fell.  There was a pause in June, but some banks restarted discounting in July as the European crisis has worsened and wholesale interest rates fell again.

 Financial markets are now expecting the Official Cash Rate to be flat at 2.5% over the next year. Economists see the OCR rising from mid 2013 to a peak of 4% over the next couple of years.

Affordability worsened slightly nationally in June as the median house price for all of New Zealand rose to NZ$372,000 from NZ$369,000 the previous month. This increased the proportion of single after tax income needed to service an 80% mortgage on a median house to 54.0% in June from 53.6% in May, the Roost Home Loan Affordability report shows

However, household affordability for first home buyers improved to 21.7% of income from 22.0% the previous month and remains around its best levels since late 2004. This difference is because the first quartile house price fell in June to NZ$257,000 from NZ$259,875.

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 Hawkes Bay and Manawatu/Wanganui, but worsened for most other regions 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% 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 June 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 35.5% from 35.3% in May.

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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Once floating mortgage rates drop below 4.5% housing affordability will be at levels not seen for decades. 

Wrong.  Note the title of the report is Home Loan affordability.  It has nothing to do with housing affordability, only how affordable an oversized mortgage is for an overvalued house.

@meh...agreed...well stated.

Taking on vast sums of debt whilst interest rates are low is really only an indicator of discount intelligence. Double the current rate, and if you can still afford it, think about it.

On the Auckland area I have monitored since 2006....over the last 12 months or so approx 15 to 18% of homes are re sales withing weeks or a couple months at most...
Increases from $5000 to $110,000  most in the $40 to$60K range.
These are value added houses.. ie picked up in need of a new kitchen, bathroom, clean up yard, carpets and a flick thru with a can of paint... often knocking out a couple walls , turn a 2 bed in to a 3....
Such large increases in in the market have a huge influnence on the  market mean price, making the forumla reflect incorrectly.

What will be the impact on the housing market now the mining boom in Australia is starting to slow down?
My pick is still more upward pressure on house rents and prices when many people return to NZ...and... the people who would have gone there decide not to.
We have seen this before...for example early 1970s and early 2000s. 

Is Australia the only place NZder's can work?
Mummy and Dadday will be glad to see many back.......that is until they see how long they stay on the dole living at home
What happen to house prices in the late 70's and post 1987? and most of the 90's?
Try opening the other eye! (the objective one)

The other eye is wide open Justice. In fact it's popping as it watches the value of my properties rise.
Consider the history of house prices in wonderful New Zealand:
House price average 1970... circa $10,700
House price average 1980... circa $35,000
House price average 1990... circa $95,000
House price average 2000... circa $165,000
House price average 2010... circa $350,000
Your future looks very good Justice.

YL .... you are a true legend of the kiwi residential property game ... keep it up son ... your eternal optimism never ceases to amaze me ... must be great to live your life in a bubble with blinders on.
What makes you think that NZ is immune economically from the outside world and especially that what happens in Australia will not affect NZ ?
Please give me a least 5 reasons why NZ is so immune?  .... I would be delighted to hear them, thank you.
PS  - No jobs .... No Rental Income

Alway happy Crazy Horse, always happy.
That's what being a property investor is all about. Even in the worst recession since the Great Depression, house values and rental incomes are rising. 
And I get to visit and read the rantings of malcontents.
Give me at least five reasons why I should not be happy? 

I have it on good authority that some peoples prime auck res portfolios have increased in value by 35% in the last 2 years.
Rates are at record lows and staying there, construction is at near zero, population is growing, people in the prime areas have jobs and access to credit.
Prices are going to keep increasing.
It would have been a shame to miss the boat on this one - luckily readers of this blog are ahead of the curve and have been able to ride the wave.

SK, you're more of a muppet than I am.

"PS  - No jobs .... No Rental Income"
"We have seen this before...for example early 1970s and early 2000s"
Its simple, more families 1 home..garage what ever..
Then we follow  " the economics of the outside world.." they are called slums, they where not always there.oThere is what should be and there is what is... very often they are not the same...and never have been..Just because someone is a landlord and doesnt own , say a supermarket, and like a supermarket owner, take time out to build, improve the business , like the supermaket owner who wishes to share there experiance/ observations, doesnt make them wrong or be judged bad.
And no im not a landlord and yes Im not fond of most of the landlords I have had...