Housing getting more affordable as prices ease, interest rates fall

Property

House prices have started falling at the lower end of the market, with Auckland's lower quartile selling price declining for three months in a row

25th Sep 15, 8:31am by Greg Ninness

By Greg Ninness

Lower quartile house prices have plateaued in almost all parts of the country and have declined in Auckland for the last three months in a row, suggesting the lower end of the property market has peaked in its latest cycle, according to the interest.co.nz Home Loan Affordability Report for August.

The report tracks monthly movements in the Real Estate Institute of New Zealand's (REINZ) lower quartile selling prices throughout the country, the price at which 25% of sales would be below that point and 75% would be above it, and this shows that the national lower quartile price peaked at $308,500 in March and has since remained within a fairly narrow range, to end up at $299,125 in August.

In the overheated Auckland market a clearer trend is evident, with the lower quartile selling price peaking at $616,500 in May and then declining in each of the following three months to hit $600,700 in August.

The lower quartile price was below it's peak in 10 of the REINZ's 12 sales regions in August, including other recent property hot spots such as Queenstown Lakes where it peaked at $403,900 in June and then declined to $371,900 in August.

In Wellington the lower quartile price peaked at $327,700 in February and was down to $311,500 in August, and in Canterbury/Westland it peaked at $354,900 in April and was $350,600 in August.

Overall the figures suggest that prices for more affordable properties have flattened or declined slightly in recent months.

The only regions where August's lower quartile price was below the previous peak were Hawke's Bay, where August's lower quartile price of $224,900 was equal to the previous peak in February, and Nelson/Marlborough where the lower quartile price hit an all time high of $308,800 in August.

Good news for first home buyers

The latest figures are consistent with recent reports suggesting that many residential investors have been selling their properties as the near term prospects for further capital gains recede.

However is it good news for first home buyers because the easing in prices has occurred at the same as recent falls in mortgage interest rates, which has had a substantial impact on the cost of buying a home at the lower quartile selling price, particularly in Auckland.

The average two year fixed mortgage rate offered by the major banks has declined in each of the last three months and was 5.08% in August, the lowest it has been since interest.co.nz began calculating average mortgage interest rates in 2002.

According to the Home Loan Affordability Report, the combined effects of the easing in the lower quartile price and falling mortgage rates, reduced the mortgage payments on a lower quartile-priced home in Auckland from $821.83 a week in May to $759,04 a week in August, a saving of $62.79 a week for a typical first home buying couple, (an explanation of the methodology used in the report is at the bottom of this article).

In Wellington the weekly mortgage payments for a lower quartile priced home reduced from $406.05 a week in May to $366.07 in August (-$39.98 a week), and in Canterbury the weekly mortgage payments for a lower quartile priced home declined from $429.08 a week in May to $419.20 in August (-$9.88).

Nationally, the weekly mortgage payments on a lower quartile priced home dropped form $376.15 in May to $349.25 in August (-$26.90).

Auckland still unaffordable

However, while the fall in mortgage costs will be welcome news for first home buyers throughout the country, prices in Auckland remain at elevated levels which means they will still be beyond the reach of many first home buyers.

As well as tracking changes in house prices and mortgage rates, the Home Loan Affordability Report also tracks changes in net household income for typical first home buyers, and how much of their income would be eaten up by the mortgage payments on a lower quartile-priced home.

Mortgage payments are considered affordable if they take up no more than 40% of a couple's net (after tax) pay, and unaffordable if mortgage payments take up more than 40% of their net pay.

The Home Loan Affordability Report shows that even after taking into account the latest falls in prices and interest rates, the mortgage payments on a lower quartile-priced home in Auckland would still take up 49.7% of a typical first home buying couple's take home pay, which means Auckland housing remains squarely in unaffordable territory for first home buyers.

However housing is still affordable for first home buyers in all other regions, with mortgage payments on lower quartile-priced homes in all regions except Auckland taking up less than 40% of a typical first home buying couple's take home pay.

After Auckland, the next most expensive region is Central Otago Lakes, where the mortgage payments on a lower quartile-priced home would take up 31.9% of a typical first homes buying couple's take home pay, followed by Canterbury (27.7%), Nelson/Marlborough (25.5%) and Wellington (23.4%).

The most affordable region in the country is Southland, where mortgage payments would be just 10.3% of a typical first home buying couple's take home pay, leaving them with plenty to invest or spend on other things.

See the chart below to compare affordability in all regions of the country.

*Home Loan Affordability Report methodology:

The interest.co.nz Home Loan Affordability Report calculates the mortgage payments on homes if they were purchased at the REINZ's lower quartile selling price in each region, and then calculates how much of a typical first home buying couple's income the mortgage payments would consume.

The mortgage payments are based on a 25 year mortgage at the average of the major banks' interest rate for a two year fixed rate loan, while typical first home buyers' after tax incomes in each region are based on the regional median incomes for couples where both are aged 25-29, which are taken from Statistics NZ's Linked Employer-Employee Data Survey.

The deposits needed to buy a lower quartile-priced house in each region are calculated as the lesser of 20% of the purchase price, or the amount that would be accumulated if the couple saved 20% of their net income for four years, and earned interest at the average 90 day bank deposit rate.

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40 Comments

by Simon | 25th Sep 15, 8:58am 1443128294

"Lower quartile house prices have plateaued in almost all parts of the country and have declined in Auckland for the last three months in a row"

Inappropriate conclusion.

The lower quartile house price has decreased. Fact.

Have houses whos prices are in the lower 25% actually lost value or flat lined as you are indicating in this article?

Impossible to know.

Unless your using QV or REINZ index data then you can not make such claims.

Simply more volume of houses selling in the lower price range would reduce the lower quartile price.

More investors from lower interest rates, less sale at top end.

Reality could actually be the opposite of what the aurthor has concluded, with less volume at higher end and more volume at lower end (investment) indicating increased prices at lower end and reduced prices at higher end.

by Alter Ego | 25th Sep 15, 9:31am 1443130301

http://www.westpac.co.nz/rednews/property/auckland-home-owners-cashing-…

by gordon | 25th Sep 15, 9:46am 1443131194

I hope those people in Auckland who have seriously big mortgage payments and other housing outgoings and who are struggling to meet those commitments are keeping their eyes on the news of late. A lot of people do not read the paper or even follow the news online. And the news seems to be pointing towards one fact. That the Auckland housing market at best is slowing down, at worst it is on the verge of falling back in some way. Negative equity is a horrible place to be in. You are making large payments but do not seem to be getting ahead and the Bank always has the option of calling up the loan. Some will have already sold, some will be selling and some might get their houses on the market too late.It is all about timing, not being too greedy and as my old sharebroker mate said leave in something for the next guy.

by ACB | 25th Sep 15, 2:05pm 1443146719

Just noted that you say that "the Bank always has the option of calling up the loan". If I interpret your meaning correctly, I think this is a common but incorrect perception, i.e. that somehow the bank can demand to have their money back at any time. In fact, they can only do that if you default on your payments, otherwise these loans are not 20 or 30 year terms.

by sadr001 | 25th Sep 15, 2:14pm 1443147272

The banks all have a sneaky clause allowing them to recall the loan and/or do a "margin call" whenever they want. In practice they don't because it'll just mean that you go to a different bank. A margin call is generally only used if your equity drops below 0% in which case the bank will generally ask you to pay back enough to get you back into positive equity.

by ACB | 25th Sep 15, 2:21pm 1443147660

I've never seen that clause - I hope you are wrong.

by dtcarter | 25th Sep 15, 3:12pm 1443150752

Suggest you read your contract. Ours with the co-op certainly has a clause that they can demand repayment in full at any time.

by gordon | 25th Sep 15, 3:15pm 1443150918

All housing loans are repayable upon demand. That is rule number one. Pending demand you make your regular payments, pay rates and insurance and maintain. Rule number two is that I f you don't make payments and maintain rule number one applies.

by ACB | 25th Sep 15, 5:26pm 1443158811

Am not a borrower so I've just looked at this excerpt from the plain English terms of Kiwibank to check: "We may require you to repay immediately to us all amounts owing (and if you have a construction component, we may also cancel your ability to borrow more money or, in the case of a revolving portion, cancel your ability to borrow more money and/or reduce the maximum credit limit) if:
a) you do not pay any amount when due under your home loan or any other agreement with us;
b) you are not, or any guarantor is not, complying with our terms;
c) something happens (whether by your actions or not) that we think impacts adversely and meaningfully on your ability to continue meeting your home loan obligations or any guarantor’s ability to meet its guarantee obligations; or
d) something happens (whether by your actions or not) that we think impacts adversely and meaningfully on the value of the property, any mortgage, any security or any guarantee, or our ability to enforce any mortgage, any security or any guarantee. ...

On clause d) I get your point, it is theoretically possible to accelerate your loan because of negative equity alone, but in practice if you fall into negative equity but otherwise you are able to service your loan i.e all other criteria a) through c) were otherwise met , then it would be quite a suboptimal decision for the bank to foreclose on you. If however you were clearly underwater , payment default is inevitable and they might seek to accelerate on the basis of negative equity. I draw this conclusion from the fact that many houses in the States were in negative equity and yet still people serviced their loans.

by Grant A | 26th Sep 15, 11:09pm 1443265772

I've never seen that in all my time in finance - a myth created by those that enjoy scaring the natives. You make your payments, there's no way the bank would, or would want to, demand its money back.

by Brendan | 25th Sep 15, 10:01am 1443132080

Would have been great if the author attached historic stats for the season, then the 'sky is falling' group will see a clear trend during the winter months. There is clearly a minority who put pins in voodoo houses, wishing the market to blip!

by JimboJones | 25th Sep 15, 7:01pm 1443164513

I don't think its normal for a huge number of houses to come on to the market in winter

by Triple | 25th Sep 15, 8:25pm 1443169505

You are correct JimboJones.

It has all started approximately one month earlier than usual.

by Jamin | 25th Sep 15, 10:14am 1443132868

Are apartments included in this? I live in Queenstown and usually when people claim house price dips down here it is often because there are more apartments sold that month, bringing down the medium or average.

by Simon | 25th Sep 15, 2:16pm 1443147392

Apartments must be as according to the map central auck is more affordable than manukau which could only be the case if the lower priced apartments of central auck were included in the figures. And we all know the auck apartment market has been going crazy lately, so that would be adding to the volume of 'lower priced' dwellings sold which drags the lower quartile figure down... even though the apartments themselves are going for 50% more than last year..

by gordon | 25th Sep 15, 10:20am 1443133224

Brendan the Auckland housing market is a lot like dairy commodities. They rose substantially in value over a relatively short period of time and if and when there is a shake out the drops could be of a reasonable size. Markets are entirely unpredictable and irrational. I believe the introduction of the IRD into property in NZ is going to be a major factor in the future. So many people have not been returning tax on their profits and will not want to be incorporated into the tax system as it will be forever hard to get back out of it. Lawyers will be very careful when taking declarations about whether it is a family home or investment as they have a lot to lose if the process is not strictly adhered to. Already we are seeing less people at auctions as they have gone to ground hoping that the IRD do not catch up with them. The party could be over. Some say property never drops in value. Being someone who has been involved in markets for 30 years I would respond to that assertion with the comment that markets are totally unpredictable. You think you have all bases covered and then someone on the other side of the world does something stupid that spooks the whole world economy. ie September 11th 2001.

by Simon | 25th Sep 15, 11:06am 1443135962

u just sold your auckland places or something? looking to pick up some bargains? a few weeks ago you were the auck property perma bull.

by Brendan | 25th Sep 15, 1:56pm 1443146181

Gordon, I agree that the market is unpredictable, however in my short time peddling, prices have on the whole gone one way, in the investors favor (100% + north in my case). I don't care if there is a dip, 5-10-20% or whatever, I'm in for the long haul. All my tenants pay less than market rates, I take care of them (Comfort and cost of living), they take care of me. Simple really, do unto others as you would have them do unto you.

by gordon | 25th Sep 15, 3:18pm 1443151083

I hope it is less important than 20 per cent otherwise Banks will call up loans

by Triple | 25th Sep 15, 11:51am 1443138693

DENY, Deny, deny, ..... all the screams of denial start.

by gordon | 25th Sep 15, 11:37am 1443137836

Simon my view has changed as the reports and views coming out of Auckland seem to be saying that the mood has suddenly changed. You would be a brave man to grab the knife when it seems to be falling. Only time will tell. I am the first one to buy shares on tough days as you often get bargains as retail clients get nervous. I would not buy a house in such conditions though as it is so cumbersome to buy them and even harder and very expensive to sell them when the mood changes for the worse. I have made mistakes over the years with timing and with quality but never to the extent that I lose the shirt off my back. when markets are involved you have to be disciplined and flexible in your thinking. I am a trader at heart rather than a buy and hold . Now is not the time to trade as there seems to be risk of downside rather than upside.

by rastus1 | 25th Sep 15, 1:20pm 1443144025

... i like your thoughful approach Gordon. So much so I am interested in your thoughts re sharemarket. Might it follow down, or perhaps gain or at least hold as an alternative investment? I am so tempted to cash out.

by General HubHub | 26th Sep 15, 11:48am 1443224931

Cash out and buy property in Auckland bro! What could possibly go wrong? Property only ever doubles every two years in Auckland! Now is the time to buy! Seriously, there is a tsunami of money heading out of China, into the Auckland property market! If you think prices were eye watering in August 2015, just wait till this time next year... You'll have wished you'd listened to the General Hubhub and I'm never wrong!
Carry on.
Yours Aye
The General

by Clarence68 | 26th Sep 15, 11:00am 1443222009

Have you thought about investing overseas Rastus? Will be tricky making money here for a few years. UK property market rising steadily outside of London - 12% in some cities like Oxford and Brighton which should continue over next few years. It is more regulated so less volatile there.

by gordon | 26th Sep 15, 9:04am 1443215069

i would love a dollar for each time over 30 years I heard a real estate agent say " I will get your client that home for that price" even though the vendor was paying the commission. As we all know agents have either failed in their previous line of work or they cannot get decent employment so they resort to real estate for income. This mornings edition of the NZ Herald announces two agents have been suspended for suspected behavior that I assume has been wide spread in Auckland of late. Am I surprised. No.
1. How many poor unsuspecting desperate buyers have bought overpriced houses from agents who bought the house from their vendors undisclosed or used a friend and shared the proceeds?
2. How many agents have helped family and friends to buy houses from their vendors without disclosing the relationship?

Agents have a great advantage in that they have first contact with vendors who would be generally pleased with their sale price but did they know who the real buyer was. Why are agents getting involved in such disgusting behavior when they are already creaming it from their commissions. Greed. When you put commissions and unethical people together you get this kind of behavior. In a market that has risen so hard and fast I assume this behavior is widespread. Should there be an enquiry? Maybe. IRD should certainly be looking at agents in Auckland to see if they have returned all their income.

by OnwardsUpwards | 26th Sep 15, 9:14am 1443215684

Agreed. I've had an incident where I've put a offer on a house well over the final selling price. I have my suspicions that the agent didn't even bother to give the vendor the offer. This house was in Wellington.

by Henry_Tull | 26th Sep 15, 10:39am 1443220756

adding to the price of the article without actually producing anything

https://www.youtube.com/watch?v=JbFlstJ4u8E
see 2:40 re investment opportunity.....

by Alter Ego | 26th Sep 15, 11:53am 1443225207

Many a true word...

But wait...there is more..Not just Real, real estate agents..wanting a cut..

Why do Banks lend money to other people to make "Investments" ??.

Would Banks not prefer to own them to make even money instead themselves. Then they would not need to pay staff, ever again.

Why not just produce money out of a hat, instead of off the top of their head.?

Why does inflation over commit others to produce excessively...when they could just stop working and wait for inflation to take effect and retire happily..ever after.?

Why do we need Politicians to make rules, they fail to adhere to and Financial deficits at others expense,so they can fool the IRD. Is there a going rate for this job,,Can I apply?.

When is an expensive house at mortgagee sale ever a good indication of an investment, is it just because as houses 'always go up in value...especially if you spend even more money on a failed enterprise, like the previous owner. Do we need to import a solution.?..do we ever...of course we do?.

Why do overseas punters, ever need to move across borders, when they are making a killing at home. Assad aside. A sad indictment. I cannot mention any others....it would not be a casual lie. Putin is sure to complain. But then there are so many who have got away with it.

As an aside on Assad and Putin, et al, why do we not fix problems at source?, but migrate them to others countries, who can ill-afford them, nor maintain their own standards as never before.

When does a benefit, become a liability, then a benefit to society.?

When did big oil, become a liar-a-bility when fracking lying. Is it just a USA phenomenon. Does the Pope have a point?. Is climate change involved?. Or just Petro Dollars.?

When did petro-dollars exceed Venezuelans almost free subsidised fuel Why do we not import the almost free stuff, direct, not the expensive stuff?...in a barrel.

When did diesel become a standard for lying and inflicting a higher mark-up than ever before. Is it germain, or German. Do Road User charges come into the equation.?. Especially when clogging up Awkland, with other imports, to the cost of others.

When can I start printing money, as I have had enough of the lying burghers who do it daily?, Import and export and exchange the problems, willy nilly. Is Libor another factor, or just the computer whizz kids, pissing us about, daily.??

Why do we need ex-Bankers to run our lives?. Is it a guaranteed end result.? Are we being Fed another lie.? Is it magic, or just collusion and slight of hand, involved.?

Enough for today?..Enough already.?

by David Chaston | 26th Sep 15, 12:35pm 1443227757

AE: Could you please update your email address in your interest.co.nz account. The old one bounces. Thk. Or, can you send it to me directly: david.chaston@interest.co.nz

by Alter Ego | 26th Sep 15, 2:14pm 1443233672

David,

My apologies for the over sight. I had to amend it, recently, when changing internet provider to save a little money for my old age and help pay my medical bills..

I did not want to take on a mortgage at my tender years. And the overheads are killing me ...Among other things.

I have updated it now.

Cheers

A & E.

by Alter Ego | 26th Sep 15, 9:20am 1443216019

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11519114

I could not possibly comment on New Zealands really, really ethical on-selling of houses ad infinitum.

by two otherguys | 26th Sep 15, 12:37pm 1443227874

One comfort is the IRD will be right on it - thanks to an alert media scribe

A perfect example of why it is past time for an open searchable database of all property transactions - available in the public domain - it's a wonder this even got into the media - reading the article it is no surprise at the names involved - always the smartest people in the room

by sharetrader | 26th Sep 15, 1:17pm 1443230256

this statement is all to common and its about time IRD came down hard on it
who sold the house due to a "change in circumstances" just two days after his July 10 settlement date

by Alter Ego | 26th Sep 15, 9:34pm 1443260040

OK, OK..

One last comment today. From the Bank of Englands lips.....to Aucklands and others deaf ears.

http://www.dailymail.co.uk/news/article-3249279/Britain-s-buy-let-boom-…

by blue meanie | 27th Sep 15, 2:50pm 1443318636

You're crazy Mr Ego As I have been told by at least three different people over the last few days - "Auckland prices NEVER come down! They only ever plateau,then start climbing rapidly again."

by Kate | 27th Sep 15, 4:16pm 1443323762

Comic quote of the weekend:

"The market has changed and some of that is the Chinese buyers. There are more requirements in getting money out of China now and that is having an impact."

I guess it would have been a bit amiss to say, "all the hot money seems to have dried up".

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115…

by General HubHub | 27th Sep 15, 4:42pm 1443325341

It seems to me to be a September thing - this article from October last year -
http://www.interest.co.nz/property/72603/nz-home-loan-affordability-fla…

I think you'll find that China will be buying up NZ wholesale over the next year...

by Kate | 27th Sep 15, 5:34pm 1443328484

Do you think however, we have seen the last of the hot money?

by puketepapa | 27th Sep 15, 4:51pm 1443325884

I wonder why - any guesses?

by gordon | 28th Sep 15, 10:16am 1443388591

I have to be careful what I say here as an official complaint will be made to the Real Estate Authority this week about an auction that took place in Auckland recently. Someone I know made a bid about $260k over the CV only to be overtaken by someone bidding on the phone. The agents then went inside and came out saying the person on the phone had bid another $150k up on their initial bid and that the reserve had still not been met. People stormed out of the auction very angry muttering about overseas buying making it tough for kiwi buyers. It turns out all the bids beyond the one made by the person I know were made by the vendors and were not disclosed as such. Everyone assumed it was a genuine overseas buyer. The vendors were obviously trying to flush out an idiot to pay way over the odds. The house was eventually passed in. I wonder how many times this has happened in Auckland. Phone bids being made with no one actually on the other end of the line. Makes you wonder just how many buyers have been duped into paying far more than a property is worth.