First home buyers being squeezed between rising lower quartile housing prices & higher mortgage interest rates, putting a dampener on their home ownership hopes

By Greg Ninness

Rising house prices and rising mortgage interest rates pushed the dream of home ownership further out of reach for aspiring first home buyers in November, according to interest.co.nz's Home Loan Affordability Reports.

The reports found that the Real Estate Institute of New Zealand's lower quartile selling price rose in seven of 12 regions in November (Northland, Auckland, Waikato, Bay of Plenty, Hawke's Bay, Wellington and Southland), was unchanged in two compared to October (Manawatu/Whanganui and Otago), and declined in three (Taranaki, Nelson/Marlborough and Canterbury/West Coast).

But even more significant was the fact that in every region where the lower quartile price rose, it hit a record high. And in Manawatu/Whanganui and Otago where the lower quartile price was unchanged from October, the October price was a record high, meaning the prices in those two regions remained at the record highs set the previous month.

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

Those figures suggest upward pressure on housing prices at the bottom end of the market at the start of summer, with the price rises being particularly strong in Northland where the lower quartile price increased from $350,000 in October to a record $385,000 in November (+10%,) and in the Bay of Plenty, where the lower quartile price rose from $420,000 in October to a record $449,000 in November (+6.9%).

In Auckland, where housing pressures are greatest, the lower quartile price increased from $660,000 in October to $680,000 in November, equalling the record high set in March last year.

That means lower quartile prices in Auckland have stopped within a hair's breadth of breaking out of the narrow band they have remained within for the last two years.

The upward pressure on lower quartile prices would be concerning enough on its own for hopeful first home buyers, but their effect was magnified by the fact that mortgage interest rates also started rising in November.

The Home Loan Affordability Reports track movements in the average of the two year fixed mortgage rates offered by the major banks, which hit a low of 4.23% in October after declining steadily since May last year.

But in November the average two year mortgage rate did a U turn, rising to 4.29%.

The combined effect of the higher prices and higher interest rates pushed up the costs of servicing a mortgage on a lower quartile-priced home, which is the price point at which 25% of sales would be below and 75% would be above, representing the most affordable end of the property market where first home buyers tend to be most active.                                                                                                                      

The Home loan Affordability Report for Auckland estimates that the combination of higher prices and higher interest rates would have pushed up the mortgage payments for typical first home buyers in the region by an extra $27.43 a week, from $661.66 in October to $689.09 in November.

That increase is particularly significant because the Home Loan Affordability Reports consider mortgage payments to be affordable when they take up no more than 40% of after-tax pay.

The reports calculate that in October, Auckland was on the verge of becoming affordable again for first home buyers, with mortgage payments on a lower quartile-priced home taking up 40.57% of typical first home buyers' after tax pay.

But the increase in lower quartile prices and interest rates in November meant mortgage payments would be taking up 42.18% of typical first home buyers' take home pay, pushing payments squarely back into unaffordable territory.

In Northland typical first home buyers faced paying an extra $42.05 a week in mortgage payments in November compared to October and in the Bay of Plenty they faced paying an extra $35.79 a week.

Across the entire country the average increase in mortgage payments for typical first home buyers was $13.85 in November (full regional and district affordability reports are available by clicking on the appropriate links in the box at left).

With housing market activity about to come to a standstill for the Christmas/New Year break and the outlook for both house prices and interest rates uncertain for the New Year, the latest affordability figures could be the Grinch that stole this year's Christmas cheer for many hopeful first home buyers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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52 Comments

I better ask Schrödinger how the Auckland market can be both crashing and becoming more unaffordable at the same time.

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11

Because it's dead in the box, silly! ( or is it just that Auckland is a tad behind Australia? "...steepening markedly with Sydney now falling 3.4% per quarter and tumbling 20% annualised for the past few months ")

How does any of your comment explain how a market is "crashing and becoming more unaffordable at the same time"?

Duh! theoretically very easy

1. increase in interest payments exceeds the rate of falling prices
2. credit availability tightens to levels that still require further price falls for prospective properties to fall into the range of the buyer maximum leverage.

bw's comment did not mention interest or credit, he spoke about "dead in the box" and "Sydney"

Well then, you sure showed bw a thing or two about making posts that are informative. /sarc

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14

Gotta keep them new residents flowing in, or else we won't be able to afford them.

I think the only solution for first-home buyers is altruism.......

Things are damned tough for them. And it's not getting any easier.

TTP

Once the minimum wage goes up to $20 - everyone will be able to afford to live in Auckland!

I don't think so, but there should be a surge in beer and cigarette consumption

Yay.. Hamilton median price down from $568k to $555k !!

Yip I noticed this as well. The trade me property listed between $400k-$550k in Hamilton have been steadily increasing in quality over the past 3 months (location + size). Hope this trend continues.

Yeah. The new CV/RV is out and many listing says "Selling below RV"
Just wondering how below they can go .. !

On that score, our new RV just got advised for 2019, the first in 5 years I guess,I don't pay too much attention and it's ....40% up on the last one! So how far below? Lot's I'd say....
Even if property stops doubling every 10 years, it appears RV's keep on keeping on!

So how far below? Lot's I'd say

Yeah; 40% sounds possible if it were to crash. I am thinking about a 'soft-landing', which the govt and RBNZ will be successful in achieving. They are mostly working on the 'other-side' of affordability - more homestart grant, increase in wages etc etc .

Hi G-H,

Don't fool yourself........

Hamilton houses aren't about to become cheap.

TTP

Hamilton houses aren't about to become cheap

hmm. only time will tell. lot of new subdivision coming here - may be in the next 2 years. And if (ex)Aucklanders stops buying here, the home prices have to match Hamilton's own economics/business activity .

yes...of course ..Hamilton NZ will be an oasis, immune from the imminent asset burst that is talked about on just about every global finance forum these days? Guess they forget to add "...except for Hamilton, NZ " at the end of their commentaries eh?

Ahh yes it's expostulated to be eminently imminent.

no no no , don't break the title , stick to what the article is saying "selling price rose in seven of 12 regions in November (Northland, Auckland, Waikato," , Propagate it further to FHB and let them suck more debt :)

Yay.. Masterton median price up from $350k to $430k.

That means I've made a 19% capital gain in 1 month.

Have you sold your place to realize the gain?

No but I spoke to the bank and they let me take out an equity loan up to 80% LVR. Also pre-approved for another loan in 12 months time should we see more spectacular gains. What a great time to be a home owner.

Plutocracy, don't bother with NZ Dan, unfortunately he thinks Interest is a Comedy website and he hardly ever contributes any serious/meaningful posts

It's unfortunate you think that way, If I have offended you I do apologize. I don't think there is anything wrong with my contributions to the vibrant mix of personalities on this site. Just like you're the 365 day a year Grinch.

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10

I for one welcome your humour about buying into the massive bubble, even as the Australian version is bursting. If you can't laugh, you'd cry, as it's going to hurt a lot of people financially.

IIRC NZdan bought his house years ago - so quite far away from the regional bubble peak (which for all intents and purposes is still going).

I got myself a very good buy. < $20k more than the previous owner paid in 2008. Combined mortgage, rates and insurance payments are considerably less than market rent. I won’t be crying if it all goes tits up.

The famous Hamiltonian Lisa Lewis might have to adjust her price accordingly

Dinnae ferget that the latest WH loan limit outside the main centres is now $500K.

New price floor for new builds, and a corresponding oopards pull on the price string for used stock....

I just looked into this "welcome home" thing - so basically it's the government enabling people to get mortgages with when they can only afford a 10%.

The stupidity of the nanny state...

Which party brought it in?

I don't recall, but it has been in place for years. I do recall National was campaigning on doubling the size of the grants. A stupid idea, unless one's aim is to use taxpayer money to push up one's property portfolio value.

Labour in 2003.

Thanks. It's a real problem when both major parties become big exponents of such a stupid policy.

Which party brought it in?

It was either lational or natbour, can't remember which.

Fake news, you can buy for 10-15% below 2016 valuations already.

All the talk of a "soft landing" in politics and the media, and in Australia before their bubble started bursting, is interesting. By definition, if it's a bubble, and it is, there won't be a soft landing, at least not without blowing a bigger bubble later or carrying on this one. Bubbles burst. Check the history of so-called soft landings.

Hi Voiceoftreason,

Soft-landing started about October 2016 in Auckland - and is now spreading to other towns/cities across NZ.

Thus, the current soft-landing has a 2-plus year history.

TTP

It's way too early to say this is a soft landing, when affordability is still so out of whack in world terms. Nothing has really happened yet except for a stall in Auckland and still rocketing up in places. Also, let's watch Australia and Canada to see how their soft landings are going. What you are saying is that it's different this time, which, you know...

Sorry, Voiceofreason, but you're mistaken.

For a start, Auckland is not "....still rocketing up in places". That's completely untrue.

Auckland house prices have hardly moved in the last two years - and sales volumes have been low/flat. The market has been anything but buoyant/active.

Notably, the Auckland market of the last 26 months has demonstrated the classic symptoms/characteristics of a soft-landing - following the boom period of 2014-16. There has been no crash but a much slower level of activity coupled with stagnant prices.

Nonetheless, in my view, that's a good thing. It's preferable to have slow/easy adjustment than the mayhem of a crash/crisis. Both the Government and the Reserve Bank seem to be of the same view.

TTP

Tothepoint, I meant still rocketing up in other parts of NZ, not Auckland. Those places that you'd expect would be the last to rise in a bubble, are still rising, as the lower prices start to look attractive, while yes Auckland has stalled. Auckland prices should really be 30% lower than they are. It looks like Sydney could drop by that much (nearing -10% already, with at least -20% predicted). I agree that stagnant prices are a good thing for Auckland, but I don't see it continuing just to stagnate. I assume you don't think it's a bubble, btw. This is not one of those rise and then plateau, then rise later situations. The bubble is just too big for that.

Notably, the Auckland market of the last 26 months has demonstrated the classic symptoms of a soft-landing -

"Classic symptoms"...

What soft landings have there been of such bubbles previously, that you could refer to symptoms as classic? Would be good if you can point to examples.

n a note after his Dublin trip, he said the European Central Bank was expected to raise eurozone rates to perhaps 3.75pc by mid-2007 from 3.25pc now, but that even 4pc was bearable for Irish and Spanish mortgage holders.

"I think this bearishness is overdone," he wrote. "It would be astounding if these economies saw anything more than a minor short-term wobble."

Source

And another one

Researchers at Harvard predict that jobs growth and increased demand for homes will let the market down gently. Source

Both written in 2006-7. Neither saw a successful soft landing.

So...have there actually been soft landings from bubbles before?

As Investopedia notes: Unfortunately, central banks’ efforts to engineer soft-landings have a track record of inadvertently causing subsequent bubbles and crashes.

Thanks RickStrauss, yes, that's exactly the point. Bubbles never have soft landings. History is not thick with examples of soft landings from market bubbles. Where are they? It's just that it's more difficult for people inside them to see them for what they are, like the NZ housing market. Same in Oz.

When a plane ran out of fuel, it will glide to a crash!

depends on the pilot but surely won't go up

Not necessarily, a plane without fuel can land safely, even on water

I can't believe you actually said something accurate.

I'm sure you'll ruin it soon by talking how great huntly is because the grass is green there or how your 18 year old daughter routinely walks around palmerston north cbd at night with a wallet full of cash, but I can actually find no BS in what you just said there.

Huntly! It's about to BOOM due to the new rail commuter service. Better get in quick (talk is that one of the America Cup team are gong to be based there). Next big thing.

More likely the boom sound will be the last of the retail going broke when the motor bypass is finished shortly.

I like your sense of humour. Coal is also an industry of the future.

How would you quantify a soft landing? Less than 5% drop in the market? Genuinely curious. Or maybe a true 5% drop, i.e. HPI is 5% lower than the equivalent month in the peak year and sustained over several months, qualifies as a moderate correction?

I don't profess to know what's going to happen, although I'll admit a "bubble burst" would be in my personal interest. Suspect the government wouldn't be averse to a few % drop, but probably don't want more than that.

There is of course, a buyer for every seller, the question is what is the sale price. One notes that once prices drop low enough there may no longer be a buyer for every seller because people are sitting on their hands and waiting for an upward swing.