First home buyers are being squeezed between rising prices and rising interest rates in the upper North Island, but prices are easing in other parts of the country

First home buyers are being squeezed between rising prices and rising interest rates in the upper North Island, but prices are easing in other parts of the country

By Greg Ninness

The housing market is at an interesting junction for first home buyers, with lower quartile dwelling prices hitting record highs in the upper North Island but falling in most other parts of the country and interest rates also starting to creep up, according to's Home Loan Affordability Reports.

This is putting housing further out of reach for growing numbers of first home buyers in Auckland while making it more affordable in much of the rest of the country.

The reports track the monthly movements in the REINZ's lower quartile selling prices throughout the country and changes in the median after tax income for typical first home buyers (full time working couples aged 25-29 in the same regions), to work out how much of their weekly pay would be taken up by mortgage payments if they purchased a home at the lower quartile selling price (the price point at which 25% of sales would be below and 75% above) to monitor changes in affordability over time.

In October the REINZ's lower quartile selling price hit record highs in four regions with particularly big increases in Auckland, where it jumped from $682,100 in September to $710,400 in October, an increase of $28,300 (4.1%) in a month.

The lower quartile price also surged in Southland, although from a much lower base, rising from $153,700 in September to $170,000 in October, an increase of $17,200 (+11.2%) for the month.

October was the first time that the lower quartile price has pushed past $700,000 in Auckland and past $170,000 in Southland.

The increases in Northland and Waikato/BoP were much more modest, with the lower quartile price increasing by just over $1000 in Northland and by a minuscule $200 in Waikato/Bay of Plenty, suggesting prices in those areas could be flattening out.

Separate Home Loan Affordabilty Reports are available for each of the following regions and cities (click to view).
Northland Regional
Auckland Regional
North Shore
Auckland Central
Waikato/Bay of Plenty Regional
Hawkes Bay/Gisborne Regional
Taranaki Regional
New Plymouth
Manawatu/Whanganui Regional
Palmerston North
Wellington Regional
Wellington City
Hutt Valley
Nelson/Marlborough Regional
Canterbury Regional
Central Otago/Lakes Regional
Otago Regional
Southland Regional
All of New Zealand

The lower quartile price also increased slightly in Manawatu/ Wanganui, rising from $198,800 in September to $201,400 in October, but that remains below the area's record high of $206,600 set in July.

However around the rest of the country the lower quartile price fell in October compared to September and in some places the decline was substantial.

The biggest drop in the lower quartile selling price occurred in the Central Otago/Lakes district, where it dropped from back from its record high of $535,200 in September to $491,700 in October, a decline of $43,500 (8.1%) for the month.

That was followed by Taranaki, where the lower quartile price price dropped from its record $268,000 in September to $233,000 in October, down $34,800 (-13%) for the month, and Wellington where the lower quartile dropped form its record high of $392,500 in September to $381,700 in October, down $10,800 (-11.7%).

In Canterbury the lower quartile price dropped by $7700 from $368,900 in September to $361,200 in October.

There were smaller falls in Hawkes Bay, Nelson/Marlborough, and Otago.

While a fall in the lower quarter selling price from one month to the next is too short a time frame to indicate a trend, the fact that the lower quartile selling prices peaked in September and then dropped back in October in Hawkes Bay, Taranaki, Wellington, Nelson/Marlborough, Canterbury and Otago, may indicate that prices in those markets have peaked.

The other significant trend that is apparent in the latest Home Loan Affordability Reports is that mortgage interest rates have begun to rise.

Much of the discussion around rising interest rates has suggested it is something that has only occurred in the last month or so, however according to the Home Loan Affordability Reports, the average of the two years fixed mortgage rates charged by the main banks (the figure used in the reports' affordability calculations) bottomed out at 4.35% in May and has since risen to 4.49%, while the average floating rate has been unchanged on 5.59% for the last three months.

However, ASB recently raised its floating rate, so we are likely to see the average floating rate starting to follow fixed rates up sometime soon.

So far, the rises in mortgage rates we have seen have been small and their impact on home buyers would have been marginal.

However, the rate at which mortgage interest rates rise could start to pick up from next year onwards and that may be weighing on the minds of some potential buyers when they consider how much they would be prepared to pay for a property.

So where does all this leave first home buyers?

If they live in Auckland the prospect of owning their own home would have receded further over the horizon for many of them.

They typical first home buyers profiled in the Home Loan Affordability Reports are couples who both work full time and earn the median wage in each region.

In Auckland that would see the typical first home buyers taking home $1588.26 a week (after tax) between them.

If they had managed to save 20% of their take home pay for four years and held it in an interest bearing bank account, they would have $72,751 to use as a deposit on a home.

So to buy a home at Auckland's lower quartile selling price of $710,400 in October, they would need a mortgage of $637,649.

Because their deposit would be less than the standard 20% of the purchase price, they would not be eligible for any of the "special" mortgage interest rates offered by the banks and would have to pay the full rate.

That means they would need to set aside $744.46 a week just to cover the payments on a 30-year mortgage, which would be 46.9% of their take home pay, and that's before allowing for other property related expenses such as rates, insurance and maintenance.

To say their budget would be tight would be a considerable understatement and they could be seriously exposed to financial hardship if interest rates start to increase substantially next year.

But the reality for growing numbers of first home buyers is that are unlikely to be able to borrow the amount of money they would need to buy even a modest home in Auckland and their goal of home ownership continues to slip further out of reach.

Around the rest of the country things are very different.

Even in areas such as Waikato/Bay of Plenty where the lower quartile price continues to increase, relative to Auckland those prices are still cheap while incomes are not much lower than in Auckland.

So mortgage payments on a lower quartile priced home remain well below the 40% affordability threshold in all regions except Auckland.

The second most expensive region in the country for first homes buyers is Central Otago/Lakes where the lower quartile price was $491,700 in October, which would mean typical first home buyers would have to set aside just a third of their take home pay to service the mortgage.

In Waikato/Bay of Plenty the mortgage payments on a lower quartile-priced home would take up just 21.6% of typical first home buyers take home pay, In Wellington it would be 22.2%, in Canterbury it would be 21.2%, in Otago it would be 14.8% and in the cheapest region in the country, Southland,  only 10.6% of a typical first home buyers' take home pay would need to be put towards the mortgage payments on a lower quartile priced home.


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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"big increases in Auckland, where it jumped from $682,100 in September to $710,400"
Really ??? I find that very hard to believe with the numerous articles saying that investors are not buying in the lower quartile in Auckland anymore and the many reports of poor auction clearances in Auckland

Yes the property market does seem to have eased off. Has anyone been observing what's been happening in the Auctions lately?

Listen guys. Despite 'auction sales' dropping by 20% in volume - that may not lead to a drop in prices!! Why, you ask? Lets say 100 lower quartile properties are up for sale. 30% sell (which would have usually been 60%). The 30% that do NOT sell, have no affect on the avg lower quartile price. It's only the 30% that DO sell, which affects the average. Therefore, if those 30% are still fetching reasonable values (maybe because the investors / fsbo's that are still keen on the auckland market) are paying good money - the average will go up, despite 'sales volume' dropping.

What I'm currently seeing is that while more properties are being passed in, vendors of these properties are UNWILLING to take a big pay cut (and would therefore rather hold instead). As such, it keeps the average price nice and firm and simply lowers # of properties sold.

This happens initially hence why volumes sold is a LEADING indicator. What happens next is agents need sales to survive and vendors need sales eventually so they meet the market and sell at a lower price instead of maintaining the 'Mexican standoff'. 15% drop for auckland in the next 12 months. Enjoy.

We saw the same last year this time. In March 2016, things started taking off again. Why will this time be different?


no, we didn't.

Auction clearance rates weren't down at 20%-30% and sales volumes didn't drop anywhere near like they have recently.

Totally different! Last years dramatic slow down was caused by the Chinese being temporarily displaced from the market due to IRD number requirements. The backlog of Chinese demand was evident in Feb-May2016 when 2 bedroom units rocketed up over 200K in a couple of months. Now the RBNZ has knocked domestic borrowers out of the market leaving the foreign money to do as it pleases. Look at the eastern bays results! Lots passed in but still houses are selling between 1 and 5 million.

Interesting article. Property bad, gold good. I notice the price in NZD crashed from 58K to 53K per kg in the last month. Given the risks in the world I would have thought that gold would be looking like an attractive investment. Especially since as that zero hedge article implies, the CCP polit bureau might decide to send the prices to the moon.

Gold tends to under perform in a rising interest rate environment since it doesn't produce any income.

Will the real estate, stock, or bond markets will perform well in a rising interest rate environment?

I've observed 15% off expectation already - vendor had to sell and material interest in a very (previously) desirable property proved limited at the fall of the hammer.

When the majority can no longer hold out, panicked price drops are likely to emerge en mass.

Pay particular attention to the North Shore. It's a magnet for Chinese buyers, both to invest and to reside in. Chinese buyers are firmly out of the bidding at the moment and it shows. The North Shore old timers are not prepared for the pending disappointment.

This from QV's article of today to support my previous comment.

"...there’s been a significant reduction in demand for entry level investor housing stock particularly in Manukau over the past month and sales prices for this type of property have reportedly dropped back by as much as 20 to 30% on what was being achieved earlier in the year."

Auckland has seen 20% reduction in sales recently. If most of those sales lost are from investors vanishing from market (40% sales were to investors in auckland, far more than elsewhere) everything else stays the same YOU WILL SEE LOWER QUARTILE FIGURE INCREASE.

Likewise, more sales to investors will lower the lower quartile figure.

Only use indexed data to make conclusions on price changes.

Auckland experiencing a 20% drop in sales , you say. Isn't that the same amount of free fall that Vancouver has recently been experiencing since the overseas investors pulled out of their market?

Yeah it's significant. Coupled with increases in listings (actual supply that matters for price setting) and huge increase in days to sell in auckland and price falls in auckland inevitable.

Listings on TradeMe for Auckland have gone down. A couple of weeks back someone said it would go over 10,000. At that time it was over 9,700 and right now it is 9,531.
Also if a sale takes a little longer it doesn't mean that a sale has been lost does it?

It's an indicator. Tony Alexander did a good graph relating days to sell to price changes back when Auckland was booming.

TradeMe listings down to 9,484 for Auckland now.

You have to consider how many of the unsuccessful at auction properties are taken off the market, and as per the RE agent's advice to put back on in Feb, after the Chinese new year.

Yes I very much agree with you Simon. I'm just trying to figure out what's going on with our property market. It's just that when the new restrictions were introduced for Investors in the Auckland property market, NZ Investors did start to spread out to other locations such as Hamilton, Tauranga etc..

Though Auckland still kept going up and sales didn't take much of a hit. Though there has been recent big global changes in the Property market affecting Overseas Investors. And since immigration hasn't dropped in fact it's been steadily increasing. I strongly suspect that the recent drop in Auckland's sales is due to Overseas Investors backing out of the market.

If that is the case, then there will be further significant falls in the Auckland and probably the NZ property market over all.

But don't we have supply issues ? What a load of bollocks that is.

I live in central Auckland, the number cranes and apartment blocks, terraced houses under construction, if theres not a glut on the market in the next couple of years Id be surprised.

Lets not forget on of the fundamental laws of money .

There exists and inverse relationship between the cost of money ( interest rates ) and the price of any asset class , be it property , property trusts or funds , Bonds, Debentures or general equities .

Any increase in interest rates will slow down not only borrowing , but also the banks willingness to throw money around like drunken sailors.

When John Key says the market will work to sort it out , he is likely to be correct , the housing market will get back to reality when the price of money ( interest) gets back to where it should be

Bit of a typo in PN report. Should be "... in October 2016, up from
$330,500 in September..." in:

"The median dwelling price was $340,000 in October 2016, down from
$330,500 in September. In October 2015 it was $295,000, which puts annual
growth at 15.3%. Five years ago the median was $270,000."

The "Average" price will probably continue to increase but its not the full story. It seems to be a 2 paced market.

I have 2 friends well established in RE sales on Auckland's North Shore - one in top-end - the other in "average houses"..the top-end is still OK in the $2M+ sales values bracket, but the median stuff - 1st home buyer or speculator property are dead in the water.

Actually seeing prices reduced and empty open homes in this segment.

Time will tell but very different to a year ago...and the year before that and that....

Sounds about right to what I am hearing. The 2m+ market where the buyers are often for cash is fine. Where leverage is required the banks don't want to investment property market-particularly south Auckland.

There still remains a big shortage of housing in Auckland and we are in peak immigration season.I think because of the supply issue prices in AKL will not fall back as far as would be construed to be a healthy correction. Also the because of the Unitary Plan and densification it means prices if certain surburbs will go up. Developers are struggling to get finance from the banks which is slowing the speed of development.
I would be a bit concerned in the provincial areas as there isn't necessarily the same demand out there.

Why would developpers struggle to get finance ? the 40% LVR doesn't apply to new builds

Foreign buyers are getting spooked and some are failing to settle, simply disappearing.
Banks are concerned about the ramifications of large volume failure to settle on the feasibility of individual projects.

Banks are particularly concerned about apartment builds, specifically the large amount of finance extended to single projects and therefore larger potential single project losses to banks.

The cost of land and the cost of building is also growing at an alarming rate, house prices are slowing or stalling in Auckland, this means that the margin of profit for developers is squeezed. Banks are struggling without sufficient deposits and higher lending costs overseas, so they are not wanting to lend on developments where there isn't a safe margin.

The banks have their internal funding issues at the moment and don't want to lend to developers where costs have risen substantially hence a number of apartment projects are not going ahead as planned. The net result is the supply everyone hoped for is not necessarily going to come through at the rate required.