Lower house prices and static mortgage rates improved housing affordability substantially in many parts of the country in April

Lower house prices and static mortgage rates improved housing affordability substantially in many parts of the country in April
Photo: Wouter Hagens, Wikimedia Commons.

By Greg Ninness

Housing became more affordable for first home buyers in most parts of the country in April, as lower quartile dwelling prices dropped while mortgage interest rates remained unchanged, making homes more affordable, according to interest.co.nz’s latest Home Loan Affordability Report.

The report said that Real Estate Institute of NZ sales data for April shows lower quartile selling prices declined in seven regions in April compared to March and rose in five.

The REINZ’s lower quartile prices for April declined in Northland, Auckland, Hawke's Bay, Taranaki, Nelson/Marlborough, Canterbury/Westland and Southland compared to March, and rose in Waikato/Bay of Plenty, Manawatu/Wanganui, Wellington, Central Otago/Lakes and Otago.

In most of the regions where prices fell in April, they had dropped back from record highs achieved in March, while in all five regions where prices rose they set new record highs.

The biggest falls occurred in Auckland where the lower quartile price in the Central Auckland suburbs fell from $772,400 in March to $721,500 in April.

On the North Shore it dropped from $821,700 to $767,900, and in South Auckland it fell from $694,500 to $675,300. In West Auckland it dropped from $680,300 to $657,800.

Across the entire Auckland region the lower quartile selling price was $700,800, which means it has now fallen back to below where it was at the start of the summer selling season in October last year when it was $710,400.

On Auckland’s North Shore the lower quartile price is now the lowest it has been since April last year, and in West Auckland it is the lowest it has been since March last year.

And although the lower quartile price rose to a new record in Waikato/Bay of Plenty, in Tauranga it was $460,000 in April, down by $10,000 compared to March, and below the record high of $485,000 achieved in November last year.

In Hamilton it hit a new record high of $429,750, up $2750 compared to March.

The biggest increase in the lower quartile price occurred in the Wellington Region, where it jumped from $425,600 in March to $449,300 in April.

In Canterbury the lower quartile price dropped from $372,500 in March to $367,100 in April, which means it has fallen for two months in a row from its peak of $389,200 set in February.

In Central Otago/Lakes District the lower quartile price rose from $543,900 in March to hit a new high of $551,900 in April, making it’s the second most expensive region in the country after Auckland.

Interest rates flat

However although the movement in lower prices was substantial in some places during April, interest rates remained flat.

The average of the two year fixed mortgage rate offered by the major banks has been stuck on 4.84% since February, although that’s significantly up from its record low of 4.35% in May last year.

Static interest rates meant home loan affordability improved in the seven regions where prices fell and worsened in the five regions where they increased.

The Home Loan Affordability Report also tracks the median after tax income for working couples aged 25-29 in each region, estimating how much money they would have to put towards a deposit if they saved 20% of their net income for up to four years, what the mortgage payments would be on a lower quartile-priced home, and how much of their weekly income the mortgage payments would eat up.

Housing is considered unaffordable when the mortgage payments consume more than 40% of take home pay.

Auckland remains the most unaffordable place in the country by far, because typical first home buyers would not just struggle to meet the mortgage payments on a home purchased at the region’s lower quartile price of $700,800, they would also find it extremely difficult to get enough money together for a deposit.

The median after tax pay for couples aged 25-29 who both work full time in Auckland is $1574.60 a week.

Need to borrow $627,771

The Home Loan Affordability report for Auckland calculates that if they saved 20% of their net pay over four years and put the money on term deposit, they would have $73,029 to put towards a deposit on a home.

That’s just 10.4% of the lower quartile price of $700,800 in Auckland, which would make it difficult for typical first home buyers on average wages to get mortgage finance and could see them having to defer buying a home for several years.

If they were able to get a mortgage with a deposit of $73,029, they would need to borrow $627,771.

That’s a massive amount of debt for a young couple on average incomes to take on, and they would need to set aside $762.75 a week for mortgage payments, which would be 48.4% of the median take home pay of working couples aged 25-29.

Although that’s down from the record 51.2% recorded in March, it’s still well into unaffordable territory, and the figure does not include other property-related expenses such as rates, insurance and maintenance.

Housing has only become unaffordable for first home buyers in Auckland since October 2014, when mortgage payments nudged past the 40% of median net pay threshold.

Between October 2014 and April 2017, Auckland’s lower quartile dwelling price has risen from $515,600 (which was the first time it passed $500,000), to $700,800, an increase of 36% in two-and-a- half years.

That has been driven by strong, migration-fuelled population growth that has seen demand for housing outstrip the available supply, creating a housing shortage which is still increasing, and the resulting rise in prices has then been turbocharged by record low interest rates.

36% versus 3.6%

But over the same period the median take home pay for couples working full time in Auckland has gone from $1520.09 a week to $1574.60 a week, an increase of just 3.6%.

Essentially the much more rapid rise in house prices compared to the much lower increase in wages has meant buying a home in has become unaffordable for working couples in Auckland on low to medium incomes.

All of Central Otago now unaffordable for first home buyers

And they have now been joined by typical first home buyers in the Central Otago/Lakes region.

Separate Home Loan Affordability Reports are available for each of the following regions. (click to view).
Northland Regional
Auckland Regional
Waikato/Bay of Plenty Regional
Hawke's Bay/Gisborne Regional
Taranaki Regional
Manawatu/Whanganui Regional
Wellington Regional
Nelson/Marlborough Regional
Canterbury Regional
Central Otago/Lakes Regional
Otago Regional
Southland Regional
All of New Zealand
 

While lower quartile house prices in Queenstown have been out of reach for typical first home buyers for several years, in April the lower quartile price for the entire Central Otago/Lakes region, hit a new record $551,900, which pushed the mortgage payments for a lower quartile-priced home passed the 40% affordability threshold to take up 40.1% of the median net take home pay of working couples aged 25-29 in the region.

That means the entire Central Otago/Lakes region is now considered unaffordable for typical first home buyers.

However Auckland and Central Otago/Lakes are still the only regions in the country where housing is unaffordable for first home buyers.

In all other regions the mortgage payments on a lower quartile-priced home would take up less than a third of the take home pay of typical first home buyers, and in many regions it would be less than a quarter.

Here’s how much of their take home pay a couple where both are aged 25-29 and earning the median wage for full time work in their region, would need to set aside each week to cover the mortgage payments ion a lower quartile-priced home in their region:

Northland 23.7%, Auckland 48.4%, Waikato/Bay of Plenty 25.0%, Hawke's Bay 19.0%, Manawatu/Wanganui 14.2%, Taranaki 18.4%, Wellington 28.3%, Nelson/Marlborough 24.9%, Canterbury 22.7%, Central Otago/Lakes 40.1%, Otago 17.2%, Southland 10.2%, All of New Zealand 22.0%.

Note: The reports for individual towns/cities within regions are not available this month because of changes being made to the way the information about them is presented and the technical work that is required to update our database. We hope the reports for individual towns and cities will be available again from the May figures (released in June) onwards.

 

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

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11
up

Nobody is living on the streets, no shortage of homes but affordable housing for kiwis. Say no to foreign investors . Learning smarter immigration rules from Scandinavia countries.

The situation may be worse than you think, I saw plenty living on the streets staying on Queen Street in Auckland last weekend. There's even a few down here in Christchurch.

Love this in the Palmy report: "To buy a home at Manawatu/Wanganui’s lower quartile price they
would need a mortgage of $171,840.
They would need to set aside $208.79 a week to cover the
mortgage payments
, which would be 14.2% of their take home
pay.
Mortgage payments are considered affordable when they take up
no more than 40% of take home pay."

Less than students pay for a cold damp single bedroom in Welly! 50% prices rises for palmy as the arbitrage happens as it does every cycle

Someone's living in my carpark.
http://i.imgur.com/z5Bvl9d.jpg
http://i.imgur.com/XshKkSP.jpg
Are you planning to slam the door behind you?

19
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After some time overseas, coming back to Auckland a few years ago was quite a surprise at the level of homelessness and begging going on down Queen St - definite jump from a few years before that when I left to the point when I came back.

ditto - sad

those wellington-dwellers who never come to auckland or never do a night-crawl down queen st will/would never know

Scandinavia countries accepted too much refugees and now they have much more crimes, terrorism and tensions within society. They have income taxes up to 60% to fulfil their social liabilities. I do not think that it's a good example.

Yes, there are plenty of people living on the streets, & in cars if they're lucky enough to own one.
Foreign investors were not only the problem in my mind, greedy local investors also drove up the price. My last landlord owned 9 properties, how many do they need? I would have thought several would be enough for a nice retirement plan.

16
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Poor old Auckland and Christchurch again. Anyone contemplating buying in those two areas should sit on their hands. The trend is down and with winter and the election looming it will become an even better buyers market than it is now.

Watch yoy growth turn negative on median prices in a few areas around Auckland next month!

12
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Wow with North shore and Central Auckland falling -$50k a month! This is sounding very reminiscent of the FT article that I posted a few days ago, where the London property millionaires are having to take million pound price cuts to sell in the central suburbs homes.

Well I did try to warn you!

14
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Don't worry I heard there was a Apartment sale last week for 8.7 Million in Remurea, this proves that the Auckland market hasn't crashed. Don't let the naysayers talk the market down.

There is enough Debt for everyone just keep loading up and this ship wont sink.

Yeah I'm sure that even the money launders will switch to other investment models at this rate of depreciation.

Proves nothing of the sort - the white shoe-brigade are a species unto themselves

But its cheap and will double in price because everyone has a spare 16 mill. Wages will increase to keep up with this. Buy now.

I wonder where sentiment sits presently in an Auckland speculators fear-o-meter (or recent FHB at max LVR using some of Mum and Dad's equity)? It's only one data point, but some turtle heads might be getting close to touching some cotton about now.

15
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I know a few investors and FHB's and they all believe houses don't go down. Cognative Dissonance is strong here.

I'd suggest politely that you do not know any investors. For that category, I'd use the descriptor "speculators" instead. I'd go a bit further and add another descriptor "greater fools".

10
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Fear?

In or around March-April last year (2016) I drew everyone's attention to the fact that our resident bell-weather Bigdaddy "suddenly" turned bearish in January of 2016 after many years of bullishness - love him or loathe him I consider him to be the best barometer going around

Any speculator who was invested prior to January 2016 and has not lightened their load then they are probably long-haulers

Any speculators who have bought since January 2016 and are still hanging-in are self-sabotagers

Exactly. Sometimes he's as arrogant as all hell, but I'd suggest that he's smart money and can read the writing clearly before most others do.

Greg, isn't that old news ? I mean REINZ figures get published at the very beginning of the month and the May figures will be out this week, am I wrong ?

The REINZ stats are usually released closer to the middle of each month. You may be confusing them with the QV stats which come out near the beginning of each month.

Thanks Greg, you're right the REINZ figures for April came out 12 May, I got them confused with realestate.co.nz April report which came out on 2nd May. Will be interesting to see their May figures soon

Its all good until interest rates keep rising, if you don't pay one way then you pay another. Lets face it, housing in NZ is never going to be "Cheap" for Kiwi's with the average salary where it is.

14
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There will be plenty of cheap houses on the market once the panic sets in... give it a year or so

I went to one of the property investor seminars that advertise on the radio last week.
They did not say prices would fall. On the contrary, they advised that now is the time to buy and make large returns for your retirement!

Needless to say, I did not believe these "property investment experts"

Once the seminars kick in and all and sundry turn up in droves, you have to know it is all over Rover, just as it was back in '87 with the sharemarket. Any seasoned share trader knows that when too many people try to get in, is actually the time to get out, I am sure the same principle will apply to real estate.

"...from June 10 CBA will require deposits for new interest-only owner-occupied and investment loans to be quadrupled from 5 per cent to at least 20 per cent."
Baby steps in Aussie; following our lead of course :) but the pain of market adjustment isn't likely to be borne solely over the Tasman. Given that New Zealand has had modest success, at best, with reigning in debt, I wonder what we could have coming from the RBNZ next?
http://www.afr.com/personal-finance/amp-hikes-rates-for-interestonly-loa...

they(RBNZ) will drop rates to bail out the poor mom and pop investors that have over leveraged.

Won't they just claim more losses at the same time as government pumps in more accommodation subsidies?

I'm not sure of the Tax implications if you buy a house interest only then sell at a 20% loss..
can you off set this against your tax bill?

I had a look at this. IRD state in regards to the Bright-line test that you can offset tax losses against other property sales but not other forms of income (ie wages, dividends etc)

http://www.ird.govt.nz/property/property-selling/selling-property.html

12
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If a particular buying demographic stays out of the market, it could actually be a bit of a bloodbath. At the moment a bit of bewilderment prevails.

By a particular demographic, do you mean buyers?

Some of them, yep

lol how PC of you :)

Isn't this great news though? To be honest I was more worried about prices going up too fast than a drop back. At least now we have let a bit of pressure out of the boiler.

Yeah the thing Zach is the drop could be quite significant especially in your neck of the woods. It wasn't that long ago when you could buy a 3 bed house in St Heliers in the high $600k bracket in 2009.

I've been tracking the Auckland market since 2006 as prices here were significantly cheaper and you could get more bang for your buck than the property prices in greater London.

We all know that the massively over inflated house prices are a direct result of overseas investor piling in to the Auckland market over the last ten years (Mainly from China). Now that they're gone there's no one apart from a few celebs and money launders to prop up those prices in the more expensive suburbs.

I did warn you guys back in Jan 2016 when we saw a fore runner of this with the -10% drop in the Auckland market due the new IRD regulations, when Overseas Investors were locked out of the market for three months.

You only have yourself to blame.

I think we will be just fine. My area has incredibly low listing numbers currently and a slightly problematic house I mentioned a little while ago that I have been watching just sold on the weekend. The central Auckland figures are skewed by high apartment numbers. The houses in the nice areas didn't actually go up, percentage-wise, as much as the outlying suburbs.

Was there a drop of 10% in Jan 2016 in the Auckland market?

This claimed 10% in Jan 16 drop was defined via which metric?

There are so many nowadays, some of which are, well, let us just say, less than correlated with individual house worth. I suspect that you may be referencing a median sales price, which is demonstrably quite different than the change in the market worth.

Goodness you have a short memory Zack and to a subject that's so close to your heart!

Article: Downturn hits Auckland housing market with prices and sales volumes falling substantially last month
Posted in Property February 11, 2016 - 01:14pm, Greg Ninness

http://www.interest.co.nz/property/79956/downturn-hits-auckland-housing-...

by CJ099 | Thu, 11/02/2016 - 21:21

It's going to drop! You can't have 39% of the Investor market disappear over night without any impact. Wake up!

Ah yes I do remember that now. It turned out to be a false alarm and prices marched steadily upward from then on. January figures are always deeply suspect due to the holiday period.

Argghh.... You are completely missing the point Zach, gloss over it as much as you like! I constantly warned you guys that the market was unsustainable. Once you decouple wages from property values your in "Tulip fever" land and we all know how that one works out. :P

Plus it wasn't just me that warned you and also recognized the risk, lots of others did too.

Don't be such a dumb ass, or I'll rub your nose in it even further though perhaps it's better to let the market do that.

I hope the drop in Postcode 1071 prices is material. Volume will dry up as those looking to downsize or move to the regions won't be certain of a sale price large enough to meet their needs, which will starve the developers of land. A down trending market will also make developments less certain. NIMBY heaven for the next five to seven years.

If it was movers and downsizing fuelling the market in the first place, maybe that would be true, but the consensus seems to be that it was foreign capital flight and specuvestors, in which case, you might expect the market to be flooded rather than see a dry one.

We'll have to wait and see ay?

If speculvestors and land bankers start trying to offload, the big boy developers may find themselves with rich pickings.

I have an investment in Postcode 1071 :) ...and yes, happy to let it remain in the NIMBY heaven for the next 10 years, although part of me is telling me to just get rid of it.

Interesting interview with Steve Keen on RNZ:

http://www.radionz.co.nz/audio/player?audio_id=201845436

He has been predicting a crash for a long time....

How long before Wellington catches the flu?

Ironically Wellington has a very powerful film industry to back them up salary wise (Salaries that are far higher than Auckland), though warning to landlords; don't bite the hand that feeds you.

Meaning; I wouldn't put up your rents because the film industry is very short term project based. Weta only employs contractors on a very short term basis, they frequently ramp up and down staff wise.

The Wellington house market has much more upside than downside at the moment. There's a shortage of listings in all price ranges and good property is hard to get hold of. Auction clearance rates remains high.

The Wellington house market has always been less volatile than the Auckland house market.

Unsurprising that Auckland is taking a bit of a breather. But, notably, theres' still a shortage of listings in hot-spots like Freemans Bay, Ponsonby and St Mary's Bay. Go look at realestate.co.nz and you'll soon get the picture......

I read a article last year that said that Wellington had not had an increase in population or jobs to warrant an increase in price and suggested the prices were a bubble.

http://www.newshub.co.nz/home/money/2016/08/watch-out-wellington---value...

Having said that, I live in a popular suburb in Wellington and all the houses are selling well atm in my area. No sign of any slow down at all.

@tothepoint: RE BS alert!

@tothepoint: I trust that you're not a RE agent. Anyone who shares your viewpoints will be accused as one regardless on this site.

Oh come on everyone knows that Real Estate Agents comment on this website in an effort to keep everyone investing in the Auckland property ponzi. Regardless of whether the market is in free fall.
Remember dear old Ted, at lest he had the guts to admit that he's an RE before he was banned.

People forget that Wellington property was quiet for the last 5 years that Auckland was booming. The Government pays well , You cant seriously believe not even a small percentage of new immigrants aren't settling in Wellington?

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&obje... article from last year. Wellington has higher advertised salaries then Auckland.

Wellington market is trying to find its new equilibrium. I would suggest there is still a way to go.

Gordon, got me to reply, however sick and tired of your snide remarks about Chch a market you have absolutely no idea about!
I am giving up making any more comments on here, as it is a total waste of my time now.
I have offered you a challenge many times and yet you are yet to take it up!
You will be pleased that "The Man" is not going to blog anymore on here, and I wish all the bloggers on here a happy and financially successful life.
Over and out!!!!!

16
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Never flounce quietly when you can go full Miss Piggy.

Kakapo does comment of the week.

Sorry to read that THE MAN 2. We need commenters from the different regions and you're our man in Christchurch. Call back in occasionally if you can.

Agree. Its great getting on the ground info on specific house sales in different cities.
Complements the macro data.
Zachary - do you have that list of latest sales in Remmers? like to see whats happening in the neighbourhood. cheers

http://www.interest.co.nz/users/nizzy

"Member for 11 hours"

Nice try Zach / DGZ

Everyone who agrees with me is me it seems. Sorry nizzy I don't really have much at the moment except what agents give me in flyers and the auction results page. I sometimes find results on weird Chinese web sites too.

I have the full list of sales in Remuera for the last few months. However I am not prepared to share the list just yet until it is necessary (Zachary will alert me when I need to do so). However, an apartment in Kingsridge sold for $8.7m last week, and I think 18 Lucerne Rd will fetch similar price if not more... http://www.boulgarisrealty.com/listings/15963602/

yes, apparently got 7 car garage, handy for parking the Yaris.
Also hear that 5 Ridings Rd was signed at 7mill last week, 400k above Homes high estimate.

Sounds like it's past bedtime for The Boy.

TM2 but you make remarks about people in Auckland and how they should sell up and move to CHCH. Leaving their family, homes, jobs and life history, instead of complaining and trying to do something about it. Auckland has 1.6 million people impacted by high house prices and this has a trickle down impact to surrounding areas. So could impact more then 2 million people.

Your more then happy to tell people how well your doing and not care about Aucklander's as they only have themselves to blame for living there and not making a decision to leave. No empathy whatsoever.

CHCH is a city in NZ, people care about NZ as a whole and dropping House prices in NZ anywhere is better for FHB, young people and most NZers who are not highly leveraged in property.

Sure people like you can make good money, but its not people like you we are concerned about its FHB and young people, the future of NZ.

Don't give up THE MAN 2 we need you here!

Who's going to call me "lazy" and "jealous" with a "chip on my shoulder" now? :(

.