Housing affordability improving in Auckland as lower quartile prices slide for third consecutive month

Housing affordability improving in Auckland as lower quartile prices slide for third consecutive month

By Greg Ninness

Buying a home became slightly more affordable for typical first home buyers in Auckland, Hawke's Bay, Manawatu/Whanganui and Taranaki last month, as falls in the lower quartile selling price more than offset rises in mortgage interest rates, according to interest.co.nz's Home Loan Affordability Reports for February.

However first home buyers in other parts of the country weren't so fortunate, as the combination of rises in lower quartile selling prices and rising mortgage interest rates took their toll (click on the links from the list below to read the full reports for all locations throughout the country).

The average two year fixed mortgage rate has risen steadily since it bottomed out at 4.35% in May last year and was 4.84% in February, taking it back to where it was in October 2015.

That is still extremely low by historical standards, however the trend is upwards and that will be pushing up mortgage payments.

The Home Loan Affordability Reports track the REINZ's lower quartile selling prices throughout the country and calculate how much of their take home pay a working couple aged 25-29 years who earn the median wage for their age group and location, would have to put aside for mortgage payments to buy a property at that price, using the average of the two year fixed mortgage rates offered by the major banks.

In the Auckland region, the lower quartile dwelling price (the price point at which 25% of sales are below and 75% are above), has declined for three months in a row to $669,700 in February, down by $47,500 (6.6%) since it peaked at $717,200 in November.

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/Whanganui Regional
Palmerston North
Whanganui
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
 

The combined median take home pay for an Auckland couple aged 25-29 is $1602.36 a week, and the mortgage payments on a lower quartile-priced home would be $724.87 a week, or 45.24%  of their take home pay. That's before allowing for other property ownership costs such as rates, insurance, repairs and maintenance.

The threshold for affordability is when mortgage payments take up no more than 40% of take home pay, any more than that and the mortgage payments are considered unaffordable.

Factoring in the rise in interest rates and the fall in prices, mortgage payments on a lower quartile priced home in Auckland have declined from $753.53 a week in November to $724.87 in February, leaving a typical first home buying couple better off by $28.66 a week, before allowing for movements in after tax income.

Although that extra money would undoubtedly come in handy for anyone struggling to afford their first home, it doesn't change the fact that meeting the repayments on a lower quartile-priced home will still be a struggle for couples on average wages.

The only other place where mortgage payments would be less affordable than Auckland is Queenstown, where a combination of a high lower-quartile price ($729,282 in February) and relatively low median incomes($1494.85 a week for working couples aged 25-29, just over $100 a week less than the median in Auckland), mean the payments on a lower quartile-priced home would take up 53.78% of their take home pay.

However in most other parts of the country, housing remains affordable for first home buyers.

In Tauranga the mortgage payments on a lower quartile-priced home would take up 33.4% of a typical first home buying couple's take home pay, in Wellington City it would be 31.7% and in Christchurch it would be 27.5%.

Whanganui is the cheapest place in the country for first home buyers, with the mortgage payments on a lower quartile priced home taking up just 9.6% of a typical first home buying couple's take home pay.

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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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You normally publish a B&T auction summary of the previous week on Tuesdays?

11
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I went to one nearby auction at the weekend, 42 Chatsworth Crescent, Pakuranga.
Homes.co.nz estimate of $1.060m, CV of $730k. Big house, good section, but internal needed a lot of work.
Only a couple of very hesitant bidders, two chats with vendor to reduce reserve, sold for $890k.
21% above CV.

One other auction I inquired about was for 18 Baringa Place, Botany Downs.
Homes.co.nz estimate of $980k, CV of $630k, sold for $805k.
27% above CV.

I think the reason why recent auction success rates have been going up have been a lot of sellers reducing their expectations/reserves to "meet the market". So whereas high auction success rates over the past few years have indicated a strong housing market with lots of competition, I think the increases in auction success rate over the last few weeks have been panicked sellers willing to sell for a much lower price, either because they have to sell (i.e. already bought new house) or wanting to get out as they think the prices will drop further.
REINZ numbers for March will definitely be interesting.

Good info, thanks. Yes, I predict a median house price growth yoy end March of -2% based on LY March massive median increase.

Most overseas buyers look at top line growth when deciding to invest, so this will be even more of a deterrent for the NZ market, especially if there are still higher returns on offer in OZ etc.

What a weird general prediction.
-2%?
Who forecasts in 2% intervals without some exceptional forecasting tools/analysis... As such, what are your methods?

Its MY prediction, and therefore can be anything I want it to be without detailed explanation. Similar to placing a bet when gambling.

Because that's what housing in Auckland has become....a gamble

Fair enough.
I was just curious as to how one gets to that figure..
Forecasting is not gambling.

Forecasting is nothing more than gambling with an extra data point or two.

Really? Surely the EV of forecasted data decisions is greater than 0, otherwise we would never construct forecasts...
I take it you don't know much about statistical forecasting.

Been doing it for 15+ years.

Gambling = using the information available to you to predict an outcome of a future event

Forecasting = using the information available to you to predict an outcome of a future event which is then changed by management for internal political reasons.

Some forecasting is accurate, some gambling is accurate. I can't honestly see any difference.

Lies.
If you were a statistical forecaster, you wouldn't have explained it like that.

The only accuracy in true gambling is that EV is net negative.

Many forms of gambling have zero, if not positive EV (in the case of the pokie owner/tab/casino)

Do you want to reread that statement?
"Many forms of gambling have zero, if not positive EV (in the case of the pokie owner/tab/casino)"

Why would anyone supply pokies/casinos if the long term EV for all customers was positive?
They may have fair games, but the payouts are almost certainly never going to represent long term neutral EV for the customer.

There are two parties to every bet. It is a gamble for both the house and the player. The fact we have casinos and pokies shows that there is a positive EV. Otherwise no one would take them.

If I look at the form and lineage of the horses, the ability of the jockey's, the weather, the track, the previous results, travel considerations, trainers, the odds etc....

I can put all those things in a statistical model, and work out the likelihood of a winner (The TAB do just this to set the odds.)

Poker is another thing that can be modeled, in fact they are seeing significant advances in AI programs.

So how is that different to forecasting?

I am sure Samsung forecasted that they would sell out of Galaxy 7s. In the end it was a gamble they lost.
Same with Dick Smiths, they probably forecast they would sell x amount of stock at x price.
Same with Fletchers...

The only thing I could cede to you, is that gambling is potentially just the result of a forecast. A good one wins, a bad one loses.

What about the black swan event that is impossible to forecast for? Or does the economist just say we've spent months researching this market, we think this will happen but there could be a black swan event, therefore our forecast holds zero validity in the case of said black swan, so decide what you like...Therefore forecasting is just a persons/organisations interpretation, biased by the limit of their own knowledge.

exactly any forecast is a gamble. It doesn't even have to be a black swan event. It could be something minor like an incorrect assumption, formula, or "political interpretation".

Here we go again with you arguing for argument's sake.
You say you have this wealth of industry and academic knowledge, but you never show it.

"There are two parties to every bet. It is a gamble for both the house and the player. The fact we have casinos and pokies shows that there is a positive EV. Otherwise no one would take them."
That just makes no sense - only one party can have a net positive EV, not both.
If the casino operator was not going to have a net positive EV, then he wouldn't operate. The Gambler doesn't care - they are chasing a short term windfall.

Yes, you can use predictive risk models and yes, the TAB does use them. I have in fact built a few now which perform relatively well.
However, again, only some people can leverage this. If everyone had the same knowledge, the TAB would still come up on top as their payouts are not 100% commensurate with the true probable odds/risk of playing. Plus there is no randomness in TAB betting - the odds are a function of expectations.

Poker is modelled under another scheme in that it is a uncooperative game with uncertain information. AI only wins because it has 100% perfect knowledge of every possible factor and leverages this in a neural way - humans do not have this. If every person had this same capability, in the game of poker, with no fixed sunk costs (i.e. the winner receivers 100% of all buy ins), over the long term, EV would converge to zero. Thus, it isn't really a pertinent example.

Look in the statistics literature and you will find a wealth of papers running simulation experiments on all of this stuff. You will see that in every case, aggregate consumers EV is always negative in the long term.

"The only thing I could cede to you, is that gambling is potentially just the result of a forecast."
Sure, gambling is a result of every decision. However, if you are making a decision based on a forecast, you are permitting yourself information that is giving you a better probability of outcome than random selection. As long as net EV in the long run is positive, what does it matter?

Didn't Warren Buffett say that forecasting told you more about the person than the future of the market - seems reliable advice when reading a lot of comments on this site!

...Didn't Warren Buffet also make a fortune forecasting market runs?
I mean, he must have some doctrine of forecasting to do as well as he has..

nope, not at all. Buffet makes his money buying undervalued companies with good management that produce good results. He doesn't care what happens to the share price at all.

In property, he would buy yield properties and not worry about capital gains, rather than gambling on capital gains like most specuvestors do. he buys for actual value, not 'market runs'.

True.
My nomenclature was a bit out.
My point being, he buys at one price and sells at another; he must only do that with some forecast about the future...

But nobody knows what the future holds so why would you ever base a purchase upon crystal balling? (which is essentially what I think a lot of economic/financial forecast are). Isn't the idea value investing. Which my understanding is from reading Benjamin Grahams book all about the quality of the company here and now. If its a good company it will perform well and provide adequate/good return regardless of what the future holds. And if the future environment isn't great, its the most likely to withstand shocks.

he doesn't sell generally. he buys to hold. If he sells it's generally because it's a poor performing asset that he's cutting his losses on, not because he's taking profits.

Again, no forecasting needed.

So, whats the basis for assessing an undervalued asset?
Is it not the relative value of it now to some other point in time?

The real fortune was gained from smart management, hence retention of the seriously large insurance float. A very smart Indian fellow, his currently name eludes me, ran that department for Berkshire Hathaway over many years.

This is what I expect to happen currently. Sales around 20-30% or less above CV for houses that need work. It is the immaculate houses in good neighbourhoods that are getting top dollar.

Yes. Good neighbourhoods like in DGZ but I suspect most FHB's are not interested in our zone unless you are Max Key.

FHBs have to settle for the East side of Upland Road.

Yes, but then their kids will be in zone for Meadowbank Primary which is a superior primary school to Remurewa Primary.

Note - edited as per suggestion below.

Are you intentionally being supercilious

Not at all. In fact it's quite the opposite because Meadowbank Primary is decile 10 and Remuera Primary is decile 9. So Meadowbank has better reputation in our community. The best primary in Remuera is not Remuera Primary but Vicky Ave Primary. I was just trying to point out that if you live on the East side of Upland Rd then you are in zone for Meadowbank Primary that's all, so please don't read too much into it and form your own conspiracy theory.

No conspiracy
Suggest you get your mate Zachary to sub-edit your posts and remove the supercilious ambiguity

Most educated readers would realise that previous posts are not supercilious. P.S. I hear Selwyn College is nice this time of year.

Your statement that the children would "have to" go to Meadowbank rather than Remuera implies that Meadowbank is an inferior school to Remuera. The fact you used the term "have to" then made a comparison with another school indicates Remuera Primary is superior to Meadowbank.

Furthermore, the context of the discussion was that FHB's have to "settle for the East side of Upland Road." Presumably because they cannot afford the west side which is superior (in a value sense). In that context you then also rub salt into the wound by saying their kids would also “have to go to Meadowbank Primary [implication: which like the East side is inferior] instead of Remuera Primary [implication: which like the West side is superior]."

I personally don't mind if people espouse the superiority of one suburb over another (e.g. who would want to live in Manurewa); however I do find your backtracking subterfuge disingenuous. I agree with "@two otherguys" that an edit is in order if you truly believe Meadowbank Primary is superior to Remuera, for example... "Yes, but then their kids will be in zone for Meadowbank Primary which is a superior primary school to Remuera Primary". [Edited after feedback on typo]

Remuera

Friend of mine taught in private schools and high-decile (desirable suburb) public schools.

Her experience? The school and teacher can make some difference, but the biggest difference to achievement is the home life the kids have, including how much their parents participate in their education. She taught plenty of rich kids who were given a terrible shot at education because their parents were too busy working, absent, or simply saw education as entirely the job of the schools...I mean, heck, that's why they live in the zone, right?

If people are moving into a zone for education reasons, and having to be absent parents to afford that, they're certainly shooting themselves in the foot.

Most parents in Remuwera DGZ send their kids to private schools anyway. They don't have to move into the zone to get into the grammar schools, they are just after the postcode, the northern slopes and the prestige. It's like a brand, a statement.

>" they are just after the postcode, the northern slopes and the prestige. It's like a brand, a statement."

LOL

I know it gets that bad. One of my friends was told by her social-alpinist mother that she was only allowed to marry a boy from "one of the five streets".

Jane Eyre, anyone?

12
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Still a long way to go before becoming 'affordable'.

Still have a long way to go before I would dip my toes into the Auckland market. Another few months of sales will give us a better trend in prices (and winter might be a cold one for some sellers)

When the time comes, start with the dmz, you will emerge tougher and wiser, making more rational decisions.
A good place for gen z to start

Last time CV was changed by 50% by the council which added fuel to fire. So everyone has role to play in this ponzi

That is an interesting scenario. CV's are due for update in July, I think? Therefore is it plausible that some properties might be selling below CV 2nd half of the year?

CV's are due for an update in July in Auckland and they have to reflect the market price at that time (July 2017). If the trend is that houses are selling for 10% over the 2014 CV in your suburb then your CV will only be raise by 10%. So no, houses won't be selling below the CV.

They will after July 2017 if the market falls from that time on, which was the original point.

2018 sales going for below July 2017 CV is totally realistic.

"Market Prices" are usually defined by algorithms from Corelogic and the like. I note the opening post of this string noted 2 examples of sales lower that Homes.co.nz estimates (presumably using similarly honed algorithms. It's perfectly plausible that sales will occur at prices lower than these CVs.

That would never happen. It would spoil the 'always good news' spin all the vested interests need to maintain.
Imagine the headlines ' Houses selling ?% below CV'. It woudn't be good for National, REA, developers,NZ Herald, home owners.....

never? There's no scenario in which that happens?

I'd argue there's no scenario in which Auckland house prices maintain double digit growth averaged over next 5 years. Even if they did spark back into life the government and/or reserve bank will jump all over it by changing LVR's even further and adding DTI measures.

There's no significant upside left in Auckland house price growth in the near term. There's only flat (less than 5% either growth or fall) or a fall left.

The only scenario in which it continues up like that is an influx of foreign capital. Vancouver-like.

Markets don't care about National, REA, NZ Herald or anything else other than the collective sentiment of the market participants.

When sentiment reverses in a speculative frothy market look out for the tsunami.

There is upward of $230B of debt tied up in residential real estate in NZ.

Well, it's a start.

I am not sure the National Government had any part to play with this outcome (as they didn't believe there was a housing crisis)..

Thank you Mr. Trump :)

Well if it's any consolation to you apparently Mr Trump's wealth status has also been affected by the current fall global house prices.
Since New York's house prices are dropping as well according to the BBC Business Report.
Trump's wealth status has fallen over a hundred places and he's now at 544 place. He's now only worth a third of what he boasted during this election campaign.

Here's the article by the way: http://www.bbc.co.uk/programmes/p04wsf4k#play

Great news :)

Any property market that is over inflated should have a correction.. its been have a rally for toooooo long

I heard a couple of days ago that people who have speculated in Auckland houses are having trouble selling them so are turning to renting them rather than selling at a loss. If there is a significant market shift they may have been better off taking a small loss now than a large one later. (interest rates are rising)

Easier said than done.
For one the rent would not cover the interest + rates, insurance & maintenance costs so they are losing money and how long are they prepared to do that for ?
Secondly if you are a speculator you generally do not want to bother dealing with tenants
Thirdly if the bank is knocking at their door, renting at a loss is not going to save them

I have to agree. The whole point of flipping is to enter and exit the market cleanly. The owner will be bleeding money for a year until they flip the property. Switching to renting is a terrible idea when the purpose of the purchase was to flip the property. All that will do is slow the rate of bleeding but they will still be going backwards.

A real trader will sell and take the hit from the loss and move on. That way they can invest their money in something else rather than continue to lose more capital. Given the number of people that aren't experienced property traders, or have bought a property to "do it up" to try to profit from the Auckland market I wouldn't be surprised at people making poor decisions.

Those that decide to hold on and compound mortgage interest or compound credit card refunded renovations can only last for so long, especially if they trigger the special provisions relating to exceeding limits and late payments.

Funny you should mention that. I had a feeling rentals is where the low sales numbers will manifest next. Been tracking Rodney rentals on trademe. As of Monday there were 209 available up from 146 in November, or 43%. Very similar to sales listing increases. To be fair, rentals on the shore have come down from 366 to 282 over the same period. As with sales, the best rentals go 1st.

I had to laugh over the weekend. You can tell the NZ property market has been running rampantly hot when you watch the Blues-Crusaders match and the jersey sponsors include the following: BNZ (x2), Barfoot and Thompson, Mike Greer Homes, CAT and GIB! Not to mention the Crusaders are also sponsored by Placemakers.

Nice. Now we just need a team sponsored by Dodgy-Cladding Leaking Homes Ltd to complete the picture.

My rates went up because my CV had increased.

I hope Auckland council will reduce my rates if my CV comes back.

Yeah I was thinking the same. If the market crash by July I wonder if all my CV's will go down and hence less rates to pay?

Houses are still selling way above GV so no chance your rates will come down. I'm fully expecting the CV of my house to still go up at the next review. The current CV is $710K and I could sell for $1M tomorrow so it still has a long way to fall if you are expecting a rates cut.

Hey Carlos, I am not expecting a rates cut because it has been announced that there will be an increase of 3.5% in our total rates bill. I am just referring to 'IF' the market crash say around June/July this year and house prices are expected to trend down for the next 3 years, then AC will need to take that into account and reduce the CV's. So with a reduced CV, even with an increase in rates, there will be less of an actual increase for home owners in terms of real dollar.

Guys, your GV is just used to determine your allocation of the rates required by the council. So if everyones GV goes down by the same percentage your share remains the same, so your rates bill wont change.

Just the thought of a Labour/Green coalition running the country has been enough to bring house prices down.

Key and English have always maintained that the Auckland housing situation is a supply problem. This is nonsense as;
1. There are two sides to any price equation, not one.
2. Restrict investor borrowing via LVR and the market dropped.
3. During the preceding two years when the market was soaring even if Auckland had built 50% more houses they would have all sold, mostly to investors. So how can it be a supply problem?

A Foreign Buyers Tax (or simply make them pay non-refundable GST) , make them buy off the plans only and pushing out the bright line test to 5 years would result in a genuine correction and move toward greater affordability.
National will never do anything meaningful like these measures so in the interim, and in the expectation of a Government with a social conscience later this year, first home buyers should sit on their hands. Nothing forces prices down quite like a refusal to buy.