A big rise in the lower quartile selling price in Auckland pushes first home ownership further out of reach

A big rise in the lower quartile selling price in Auckland pushes first home ownership further out of reach

Buying a home became significantly more difficult for first home buyers at opposite ends of the country last month following strong rises in lower quartile selling prices in Auckland, Waikato/Bay of Plenty and Southland, according to the latest Home Loan Affordability Report by interest.co.nz

The report says the Real Estate Institute of New Zealand's 's lower quartile selling price hit a new record high last month, driven mainly by exceptionally strong price rises in all three regions, which more than offset the benefit of falling interest rates.

The REINZ's national lower quartile selling price (the price point at which 25% of sales were below that figure and 75% were above it) hit an all time high of $309,000 in September, up from $299,125 in August.

That was mainly driven by strong increases in lower quartile selling prices in Auckland, where it shot up strongly after falling for each of the previous three months, to hit an all time high of $630,500 in September, compared with $600,700 in August.

There were also strong rises in the lower quartile selling prices in Waikato/Bay of Plenty, where it increased from $271,700 in August to $293,800 in September, and in Southland, where it increased from $135,900 in August to $157,900 in September.

September's lower quartile selling price set new all time highs in all three regions and the strength of those price rises more than wiped out the benefit of falling interest rates on the mortgage payments that would be required to purchase a lower quartile priced home in them.

However in all other regions around the country September's lower quartile prices were below their previous highs.

The Home Loan Affordability report calculates mortgage payments* at the average of the interest rates offered by the major banks on two year fixed rate mortgages.

That has declined every month since May, when it was 5.61% and came in at 4.97% for September.

But even with the lower interest rates, the strong rise in prices would have pushed the mortgage payments on a lower quartile priced home in Auckland to $791.12 a week, compared to $759.04 a week in August and $675.72 a week in September last year.

That is an increase of $115.40 a week (17%) in 12 months.

Consuming 52% of take home pay

According to the Home Loan Affordability Report, the median after tax pay of a working couple in Auckland where both are aged 25-29, was $1528.73 a week* in September, which means the mortgage payments required to purchase a lower quartile priced home would consumed nearly 52% of their take home pay.

That suggests that even a lower quartile priced home would be severely unaffordable for a typical first home buyer couple in Auckland because mortgage payments are considered affordable when they take up no more than 40% of take home pay.

Their situation would be even worse once other property related costs such as rates, insurance and maintenance are factored in.

However Auckland remains the only region where lower quartile priced homes would be unaffordable for typical first home buyers, with mortgage payments on lower quartile priced homes taking up less than a third of take home pay in all regions except Auckland.

Even after allowing for last's month's jump in the lower quartile selling price, the mortgage payments on a lower quartile-priced home in Central Otago/Lakes (the second most expensive region in the country) would take up 31.2% of typical first home buying couple's take home pay, followed by Canterbury (27.6%).

Twice as affordable as Auckland

Of the remaining regions, the mortgage payments on a lower quartile priced home would take up between 20% and 25% of a typical first home buying couple's take home pay in Northland (21.3%), Waikato.Bay of Plenty (23.8%), Wellington (24.7%) and Nelson/Marlborough (24.8%), making homes for first homes buyers in these regions at least twice as affordable are they are in Auckland.

In the most affordable regions of the country, mortgage payments on a lower quartile-priced home would take up less than 20% of a typical home buying couple's take home pay. These were Southland (11.8%), Otago (16.4%), Manawatu/Wanganui (13.5%), Hawkes Bay (16.6%) and Taranaki (17.6%).

Auckland CentralAuckland North ShoreAuckland SouthAuckland WestWellington CityHutt ValleyPoriruaKapiti CoastWhangareiNew ZealandHamiltonTaurangaRotoruaNapierHastingsGisborneNew PlymouthPalmerston NorthWanganuiNelsonChristchurchTimaruWairarapaQueenstownDunedinInvercargill

*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 rates 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.

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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Be more interesting looking at the numbers after the new rule changes that have come after 1 October. Sydney property market starting to drop and the absence of buyers from china having a impact on the Auckland market. Be wary of the bubble as property not so liquid when the tide turns.

Totally agree, talking to a B&T agent this week, the auction rooms are very quiet these days, no sign of previous Asian faces that once filled the rooms. Clearance rate fallen to 30%. Any other comments on recent sales?

So after years of being told that it's racist and xenophobic to suggest that all the Asian faces in our auction rooms were foreign buyers, it would now suggest that a significant proportion of them were.

Tighter controls on foreign money coming in suddenly sees a drop-off in Chinese buyers in auction rooms.... if it walks like a duck and quacks like a duck, it's probably a duck.

We used to call a spade a spade in New Zealand. Or so the saying went.

Denial is a major part of the problem, worldwide. Peeking at the ducks in a row is now old hat.

It is in no ones interest to think otherwise.

Knowing what is the problem, is the main thing in life, you have to avoid the pitfalls, the lies, obfuscation and spin.

(The laundromat was on fast spin, now coming home to roost, Xi will not stand anymore, he has gorn off the Kiwis and UK is now his BFF, to see if he can get alongside the real money makers and launderers).,

Some people only know how to spend money.

Some people have it made.

Some people like to deny how they get their cut. They only care what they get, not what it truly costs.

Some people are dishonest and some people like to create a scene.

If you believe all the stories, all the spin, all the financial shenanigans, you have my sympathy.

Do have a good Labour Weekend. But please do not labour under any illusions.

By the way,

The Fat cats have a better life, No labour involved,but my word, the expenses and the Media expenses and the room for improvement...are more than we can truly understand, or bear.

If you are reading this particular Media..

Desist.

Success rates at Wednesday Auctions this week (B&T city office):

Morning auctions for both rooms (Bays Area):
Room 1. 41% success (9/22 sold)
Room 2. 44% success (8/18 sold)

Afternoon auctions (Epsom area, with only one auction room) 37% success (15/41 sold)

…seems pretty slow.

meanwhile BE is still trying to talk the market down, hands must be sore from sitting on them
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1153...

Housing prices far out of control of Government and RBNZ.

And will be on the way down also...

I was reading the Auckland City 10-year plan recently. They had a cute little diagram explaining the concept of average rates.

Four houses were drawn in a cute little row.

The houses got bigger as their values (against which rates would be assessed) rose.

The smallest little house had a value of $500,000.

Me being from Palmerston North, I spit coffee all over my keyboard in an outburst of laughter.

(And then I felt guilty, because it's not really funny).

http://www.aucklandcouncil.govt.nz/SiteCollectionDocuments/aboutcouncil/... (page 13).

PS - I suspect the council spends too much on graphic design.

Were you spluttering at the $4,000 in rates for the small house too? Which I presume excludes the cost of water?

You might have been looking at the next row - for businesses. The littlest house had an average rates bill of $1,700 (and yes, that excludes water charges).

That compares with here in Palmy, a $500,000 value would have rates around $3,700. So in that regard, AKL rates are a walk in the park in comparison. Reason is, AKL also has all those CCOs (Port, etc.) that return it revenue - which subsequently subsidises rates. So there are some benefits of living in the big smoke.

well that's a misprint, no house in Auckland would pay only 1700 in rates

Had another look - see here page 13;

http://www.aucklandcouncil.govt.nz/SiteCollectionDocuments/aboutcouncil/...

My mistake - but they're a clever little bunch of bureaucrats. The table heading says " Rates impact with the Interim Transport Levy" but then the detail line says "General rates plus Interim Transport Levy" - and that's where I got the $1733 number from.

So they are only talking about the "general rate" - and (given your feedback) I now assume this doesn't include any fixed charges, any targeted rates or any UAGCs. That's extremely sneaky and misleading - as most ratepayers I come across do not understand the distinction between a general rate and all the other rating tools. Rates are rates to them. And in having the table heading "Rates impact.." (for me on first glace) made me think overall rates.

Sorry for my misinterpretation, but I have to wonder whether this was designed to intentionally mislead the casual reader.

So, there is no rates advantage to living in the big smoke anymore.

Sheesh - this Supercity was supposed to create efficiency and thereby reduce rates overall. Sold a pup comes to mind.

deleted

Hmmm .. I decided to look further into it - see my comparison below.

Auckland IS cheaper - much, much cheaper (from a rates perspective) than Palmerston North.

That said though, I have no idea what water rates cost up there - as for Palmy they are included in overall rates (no metering). Though I can't imagine they come anywhere near $2,000 pa (that being how much the Palmy rates are above the AKL one for properties with similar CV).

Oops my mistake.

Don't think it's apples and apples comparing $500k houses in those cities though. A bit of digging in Palmerston North plan shows average residential unit with land value of $136,000 rates are $2,207. Not sure what an average residential unit is in Auckland but if it's say $600,000 from Auckland little infographic thingee scale probably pretty similar when water costs added back.

Your biggest toys are bigger and flasher I guess but most of the fundamentals services not too dissimilar and much easier to access.

See my explanation above - the mistake was mine.

Well this has made me curious - so I did a comparison:

Palmerston North
http://www.trademe.co.nz/property/residential-property-for-sale/auction-...
Capital Value = $480,000
Rates = $3,976.64

Auckland
http://www.trademe.co.nz/property/residential-property-for-sale/auction-...
Capital Value = $485,000
Rates = $1,921.27

Only a $5,000 difference in Capital Value and in Palmerston North, water rates are included in that total rates number. But still - a huge difference - Palmerston North being much higher rates. Far bigger, nicer house and section in Palmy (as one would imagine given AKL prices) but in comparing the overall rateable value (that being the Capital Value of a property) - Auckland is much cheaper (rates wise).

It should also be mentioned, that Palmerston North's general rate ( the general rate being only one component of overall rates) is set based on land value only (not capital value as is the case in Auckland I believe) - and therefore, the 'posher' suburbs with higher land values pay proportionately more, no matter what type/value of house is built on it.

So in Palmy, you can have a 100 year old villa (renovated or not) with far, far higher rates - than a new house of equal capital value in the outer suburbs where there are much lower land values.

But the main point is - when comparing CV to CV across the two cities - Auckland rates are cheaper - and by a reasonably significant margin.

Bottom line BE admitted on Friday that the Government has been effectively subsidising the housing crisis to the tune of $2 billion to date through accomodation supplements. The is a fundamental betrayal of the average Kiwi who wants to get into their own home. Property investors are able to pay higher prices and their rental income is heavily subsidised by the taxpayer. Now looking for a political party to stand in the next election with the balls to do something about it?

Who started the supplements?

In terms of "balls" if such action causes a price collapse and a recession will you regret voting for them?

Actually I don't care about a price collapse. Through careful timing a saving I am mortgage free and haven't invested foolishly in property. It is all relative though, if houses devalue by 50% then my one might be worth 50% less but so will relatively the one I'll want to move to (I know this is an over simplification) any mortgage will be smaller and more affordable and therefore the disposable income after mortgage that much more. Also rents should be a lot less as yields can be the same on much less capital invested. Everyone (except the investors who have driven the price out of ordinary kiwi's reach) will win. Currently the Government are subsidising the investors but no one else.

Not directly no.

Like you I have minimal debt having been paying may mortgage down for faster for many years as I could see this coming. Sure my house could lose 50% of its value, an amount of no consequence as I never earned it, never spent it. The problem of such an event is a) pensions will go bye bye, so 40 years of private pensions severely decreased if not gone. I would be surprised if that doesnt hurt you. b) taxation, if the Govn bails out the banks then that is decades of higher taxes and less public services, ditto the effect on you. c) In such an event companies close and jobs will be lost and ppl with no jobs dont buy houses or spend money. see b) No everyone will not win, sure some "investors" will be wiped out but so will many FHBs and they being in negative equity sees the banks insolvent see a).

Sure the Govn is subsidising the gamblers and sure I agree it is wrong and yes I agree it has to stop, but destroying our economy is like cutting off your nose to spite your face, you and I will hurt maybe even more than the "investors".

Where do you link in pensions? My investments (kiwi saver, Govt Super) to supplement the GRI should mean that my pension is moderately safe. I do get what you are saying - so how about a staged pullout over say 10 years? Where the Govt uses publicity and time to create a gentle let down rather than a cold turkey crash?

pensions are really holders of assets that generate income. So a pension fund holds shares in a fossil fuel company who's only viable business model is selling oil. or say Microsoft, EMC, Vmware, Dell, Google, facebook all these companies have value based on BAU ie growth for ever. How much income will they get in a depression and power down? a fraction of their present worth.

Here, this is the problem laid out very well,

https://www.youtube.com/watch?v=AdNvmIfyQPY

We are going through an interesting time in our house at the moment. Living in the lower North Island we are experiencing the madness that exists in the upper North Island from property buyers. executor of an estate with a house to be sold in Waihi. House sits right above the mining activity and a pessimistic outlook was conveyed by neighbours about how long it would take to sell the house. Within 3 weeks of it going on the market two cash offers came in and a third backup offer this week. All above RV.