Housing affordability improving in most parts of the country as prices fall faster than interest rates are rising, our latest Home Loan Affordability Reports show

Housing affordability improving in most parts of the country as prices fall faster than interest rates are rising, our latest Home Loan Affordability Reports show

By Greg Ninness

Housing became more affordable for first home buyers in most parts of the country last month, as falling prices more than offset the extra costs of rising mortgage interest rates, according to interest.co.nz's latest Home Loan Affordability Reports.

The reports show that the fall in the Real Estate Institute of NZ's lower quartile selling prices, which became evident in many parts of the country in December, intensified and spread to most parts of the country in January, with the falls in some places being significant.

The REINZ's lower quartile price (the price point that 25% of sales would be below and 75% would be above) declined in nine regions (Northland, Auckland, Waikato/Bay of Plenty, Taranaki, Wellington, Canterbury, Central Otago/Lakes, Otago and Southland in January compared to December, and continued to rise in only three, Hawke's Bay, Manawatu/Whanganui and Nelson/Marlborough.

In Auckland the lower quartile price peaked at $717,200 in November then dropped to $706,400 in December and $675,900 in January.

That more than offset the effect that rising interest rates would have had on mortgage payments for a lower-quartile priced Auckland home, with the average of the two year fixed rates offered by the major banks rising from 4.41% in June to 4.81% in January.

However, because prices in Auckland remain so high, the fall in prices that has occurred over the last two months would only have reduced the mortgage payments on a lower quartile-priced home in the region by just over $23 a week, from $753.53 a week in November to $730.15 a week in January.

Household budgets extremely tight

While the savings the price falls have provided are not huge, the amount of debt first home buyers in Auckland would need to take on to get into a home of their own remains so large that their household budgets would likely be extremely tight and every little bit of extra cash would help.  

The reports show that lower quartile prices have also fallen in areas that have been regarded as property hot spots, such as Hamilton where it dropped from its peak of $428,500 in December to $404,250 in January, and in Tauranga where it has fallen back for two months in a row from its peak of $485,000 in November to $451,250 in January.

Separate Home Loan Affordability Reports are available for each of the following regions and cities (click to view).
Northland Regional
Whangarei
Auckland Regional
Rodney
North Shore
Auckland Central
Waitakere
Manukau
Papakura/Franklin
Waikato/Bay of Plenty Regional
Hamilton
Tauranga
Rotorua
Hawke's Bay/Gisborne Regional
Gisborne
Napier
Hastings
Wairarapa
Taranaki Regional
New Plymouth
Manawatu/Wanganui Regional
Palmerston North
Wanganui
Wellington Regional
Wellington City
Hutt Valley
Kapiti
Porirua
Nelson/Marlborough Regional
Nelson
Canterbury Regional
Christchurch
Timaru
Central Otago/Lakes Regional
Queenstown
Otago Regional
Dunedin
Southland Regional
Invercargill
All of New Zealand
 

Even in the Wellington region, which has had one of the hottest real estate markets in the country over the last few months, the lower quartile price dropped from its peak of $423,900 in December to $381,900 in January.

In Christchurch the lower quartile price has fallen for two months in a row from its peak of $411,300 in November to $374,400 in January (click on the links at left for the individual reports on specific cities and regions.)

While the decline in prices and corresponding reductions in mortgage payments will be welcome news for most aspiring first home buyers they are only a small step in the right direction. First home buyers who take on large amounts of debt to get into their first home will remain at risk of encountering serious financial difficulties from rising mortgage interest rates unless the recent price falls continue.

That is especially true for first home buyers in Auckland where the mortgage payments to buy a lower quartile-priced home are likely to be double what they would be to buy a lower quartile-priced home in most other parts of the country.

The Home Loan Affordability Reports track how much of a typical first home buying couple's weekly income in each region would be sucked up by the mortgage payments on a lower quartile-priced home in the same region.

In Auckland the mortgage payments would take up 45.67% of their weekly take home pay, compared to 21.26% in Waikato/Bay of Plenty, 22.84% in Wellington and 20.82% in Canterbury.

So although house prices in Auckland have edged back from their highs over the last couple of months, housing in the region remains seriously unaffordable for aspiring first home buyers on average incomes.

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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17 Comments

Thanks to interest.co.nz for compiling this.
I note that the assumption that "A mortgage is ‘affordable’ when the mortgage payment is no greater than 40% of household weekly take-home pay" (assuming 2 year fixed rate, 25 year term.
That figure of 40% would have to be at the upper limit of affordable (loan to income = 5.75).
We learnt from ANZ economists that some innumerate borrowers are committing up to 52% of income, sad!.

What people don't think about is that the those that take on 40-52% of their income in debt servicing are quite often miserable. When I deal with people to help them change behaviour and navigate their way out of financial difficulty they often feel terrible about the position they are in. Large payments make people feel trapped, and in fact they are with fixed terms.

How many people have bought more house than they need? How many are struggling with large payments?

14
up

Man, if there's a slump, some people are going to really hurt...

I feel slightly fortunate to be watching from the sidelines in a small, cheap rental we can leave at any time. (Despite my share of tears and depression at watching speculators and foreign buyers push houses out of the reach of young Kiwis.)

12
up

When we bought our first home it was 20-25% not 40%. Got to feel sorry for the younger ones

Saw in news that average price drop by 1.5% - Drop of 1.5% is affordable :)

Anything for a headline.

I wonder who can now afford a house that couldn't last month.

Step in the right direction.

I still think that Auckland's house prices have a lot further to fall. I would advise and FTB's to wait a few months more for prices to 'bottom out' otherwise you could be risking negative equity later down the track.

The only way house prices can stay completely completely disconnected from incomes is if the NZ government keeps inviting foreign buyers in to perpetuate this.

Young Kiwis should realise that's the game. The country is being sold out from under them for a quick buck for folks born at the right time.

A frend of mine is forking out over 67% of his net pay on rent for an Auckland city fringe apartment - they are just lucky his partner has her own business and they have no kids.

I have suggested to move to Brisbane or Adelaide.

So in all honesty, just how much is "affordability improving" ??? ......pathetic really.

Surely this is an 'alternative fact' piece? We all know RE prices never drop.

It's curious to me that Christchurch prices haven't dropped more. The supply of low cost sections appears to be overbuilt. At least a thousand sections between Wigram, West Melton, Halswell, Amberly etc. One would expect once actual building consents catch up there will be significant price reduction helping first home buyers.

"In Christchurch price has fallen for two months in a row from its peak of $411,300 in November to $374,400 in January"
That's a drop of 9% in 2 months !

As various commenters (some now banned) have been saying everything is fine and prices only ever go up.

Yes Auckland and Christchurch are certainly not flavour of the month currently. I note there are now 10262
Auckland homes for sale on Trade Me now. It certainly looks like a bit of fear is hitting the market there. More and more people are trying to sell now and lock in their profits. Interesting times.

Now 10,291. Last week we were talking about whether it would hit 10,000.

Edit: Thanks for fixing the error. Apologies for being so grumpy.