Interest.co.nz's Home Loan Affordability Reports show first home buyers are benefiting from falling house prices in Auckland

By Greg Ninness

There has been a significant improvement in housing affordability on Auckland’s southern outskirts thanks to falls in lower quartile house prices in Papakura and Franklin, according to interest.co.nz’s latest Home Loan Affordability Reports.

The reports track the monthly movements in the Real Estate Institute of New Zealand’s lower quartile selling prices in 28 districts throughout the country, and compares them with movements in mortgage interest rates and wages to estimate changes in housing affordability for first home buyers in each district.

In November the lower quartile selling price in Papakura dropped to $549,000 from $575,000 in October, putting it well below its June peak of $588,000 but still above the November 2016 lower quartile price of $537,000.

In nearby Franklin (which includes Pukekohe) the lower quartile price dropped to $540,000 in November from $569,000 in October, well down from its January peak of $580,000, but still above the November 2016 price of $495,000.

That puts Papakura and Franklin squarely into affordable territory for first home buyers.

The Home Loan Affordability Reports estimate that the mortgage payments on homes purchased at November’s lower quartile prices in Papakura and Franklin, would take up just over a third (35.4% and 34.7% respectively) of typical first home buyers’ take home pay.

Mortgage payments are considered affordable when they take less than 40% of take home pay.

However Papakura and Franklin remain the only parts of Auckland where housing could be considered affordable for first home buyers.

Is the worm turning elsewhere in Auckland?

In the rest of Auckland excluding Papakura and Franklin, lower quartile prices are so high that mortgage payments on homes purchased at those prices would eat up between 43% and 56% of typical first home buyers' take home pay, putting them well into unaffordable territory.

However things may be about to change.

The regional figures for the whole of Auckland show there has been very little change in the region’s overall lower quartile house price for more than a year, creating a stable rather than favourable environment for first home buyers in the region.

The Home Loan Affordability reports show that the REINZ’s lower quartile selling price for the Auckland region has been largely steady since August last year, when it hit $655,000.

Since then, apart from a brief dip down to $630,000 in February this year and then hitting a peak of $680,000 in March, it has remained within a narrow range between $640,000 and $675,000.

In November this year the lower quartile selling price was $660,000 compared to $675,000 in November last year. November this year was the fourth month in a row that the lower quartile price has been below the price for the same month of last year.

So while the lower quartile price has moved up or down from month to month, the movements have mostly been small, and the overall picture is that the lower quartile price in Auckland has been largely flat for around 16 months.

While that may not be good news for property owners hoping for capital gains, it does appear to have signalled an end to the seemingly endless rise of Auckland house prices that was a feature of the market over the previous three or four years.

Low mortgage rates helping

First home buyers would also have been helped by the fact that mortgage interest rates have remained at historically low levels over the last 12 months.

Although there have been movements in interest rates over the last year they have also been relatively minor. The average of the two year fixed rates offered by the major banks was 4.78% in November compared to 4.51% in November last year.

The fact that lower quartile prices have been moving sideways at a time when mortgage interest rates have remained near their record lows suggests the puff has come out of the affordable end of Auckland’s property market.

The decline of lower quartile prices in Papakura and Franklin has come after a period of weakness in those markets largely caused by relatively low levels of investor activity.

It remains to be seen whether the falls in prices in Papakura and Franklin will be sustained or perhaps even accelerate in the New Year, or if price falls will spread to other parts of Auckland.

But Papakura and Franklin aren’t the only parts of Auckland where sales have been weak compared to previous years, and there are signs of rising levels of unsold homes throughout the region as we head towards the Christmas holiday break.

Cautious optimism

Given the current market conditions, first home buyers in Auckland would be justified in being cautiously optimistic that affordability could improve for them in the New Year, bringing the prospect of owning their own home a little more within their reach.

The only centre outside Auckland where housing is also unaffordable for first home buyers is Queenstown, which sits just behind Auckland’s North Shore as the second most expensive district in the country.

But housing remains affordable everywhere else.

Even in major centres such as Tauranga, Hamilton, Wellington and Christchurch, the dream of home ownership should be within reach of first home buyers on average incomes, provided they can rein in their expenses to a level that will enable them to scrape together a deposit.