By Greg Ninness
Lower quartile house prices are falling in Auckland, Wellington and Christchurch making life a little bit easier for first home buyers in the main centres, according to interest.co.nz's latest Home Loan Affordability Reports.
The Real Estate Institute of New Zealand's lower quartile selling price in Auckland was $649,000 in July, down by $31,000 (-4.6%) from its peak of $680,000 in March.
It was the fourth straight month that the lower quartile selling price (the price point at which 75% of homes sold would be above and 25% would be below) putting home ownership slightly more within the reach of aspiring first home buyers.
Unfortunately most would likely still struggle to get into their own home unless they had higher than average incomes.
According to the Home Loan Affordability Reports, the mortgage payments on a home purchased at Auckland's lower quartile price of $649,000 would be $698.61 a week, which is 43.4% of the after tax pay of a couple earning the median full time pay for people aged 25-29 in Auckland.
That's down from 46.1% of their take home pay if they had purchased in April, but the mortgage payments are still likely to be a struggle because other property related expenses such as rates, insurance and maintenance come on top of that.
More than 7 years to save a deposit
But the biggest hurdle many first home buyers in Auckland could face is saving enough money for a deposit.
According to the reports, if a typical couple earning the median pay for 25-29 year olds saved 20% of their net pay every year and earned interest on their savings at the prevailing 90 day bank deposit rate, it would take them just over seven years to save a 20% deposit for a home at the lower quartile selling price.
The basic problem facing first home buyers in Auckland is that over the four years from July 2013 to July 2017, Auckland's lower quartile price has risen from $385,000 to $649,000, a whopping 68.6% increase.
But over the same period of time, the combined median take home pay for couples aged 25-29 has increased from $1500.65 a week to $1610.14, up just 7.23%.
So house prices have risen at nearly 10 times the pace of wages for typical first home buyers over the last four years.
The effect of that on mortgage payments has been mitigated to a degree by falling interest rates, with the average of the two year fixed rates offered by the major banks dropping from 5.64% to 4.84% over the same period of time.
However even with falling interest rates, the mortgage payments would have increased by two thirds over the same period (assuming the home was purchased with a deposit equal to the amount saved over four years), rising from $422.12 a week in July 2013 to $698.61 a week in July this year.
That's also pushed out the time it would take to save for a 20% deposit which has more than doubled, rising from just under three years to more than seven.
So even with the recent falls in Auckland house prices, home ownership is likely to be beyond the means of typical first home buyers on average wages in Auckland.
Things are quite a bit easier for first home buyers in other parts of the country.
In Wellington and Christchurch lower quartile prices remain well within affordability limits for typical first home buyers, and recent falls in prices have helped that situation even further.
In the Wellington region, the REINZ lower quartile selling price was $360,000 in July, down by 11.1% from its peak of $405,000 in April.
That means it would take a couple on the median pay for 25-29 year olds just under four years to save a 20% deposit and the mortgage payments would take up just 21.2% of their take home pay.
In Canterbury the REINZ lower quartile selling price was $327,000 in July, down from its peak of $355,000 in November last year.
That means it would take a typical first home buying couple just over three and a half years to save a 20% deposit and the mortgage payments would take up just 19.7% of their take home pay.