By Greg Ninness
The Auckland housing market may be at an important turning point with a significant improvement in affordability for first home buyers, according to interest.co.nz’s latest Home Loan Affordability reports.
The improvement in affordability has been caused by three important factors:
- Flat housing prices which have remained basically unchanged in Auckland for almost three years.
- The ongoing decline in mortgage interest rates.
- A slow but steady rise in the median after-tax pay for typical first home buyers.
House prices flat
Interest.co.nz’s Home Loan Affordability reports track the Real Estate Institute of New Zealand’s lower quartile selling price for residential property sales throughout the country. Although there are monthly fluctuations up and down in Auckland, these have mostly been modest.
Auckland’s lower quartile price has remained between $630,000 and $680,000 since July 2016.
It briefly looked as though it would test the upper limit of that price band in February and March this year when it hit $680,000. But then it dropped back to $670,000 in April, leaving it virtually unchanged from where it was in October 2016 when it hit $669,000.
That trend is now evident throughout the Auckland region with the exception of Franklin on Auckland's southern rump, where the REINZ lower quartile price set a record high of $635,000 in April.
It will probably be a couple of months before it is known if the April’s spike in prices in Franklin will be sustained or was a one-off aberration.
However the trend throughout Auckland has been an extended period of relative price stability since late 2016.
Mortgage rates down
The average of the two year fixed mortgage rate offered by the major banks was 3.97% in April, which was a record low and the first time it has been below 4% since interest.co.nz started collating the mortgage rate data in January 2002.
That means mortgage interest rates are now less than half what they were when they peaked at 9.64% in March 2008.
The Home Loan Affordability reports track the combined after-tax pay for typical first home buyers (a couple where both are aged 25-29 and working full time) and in April this was estimated to be $1666.08 in Auckland, which was up $33.04 a week (+2%) compared to April 2018 and up $68.96 (+4.3%) compared to April 2017.
Those three things combined have led to a significant improvement in housing affordability for typical first home buyers in Auckland.
Interest.co.nz estimates that lower interest rates have seen the mortgage payments on a lower quartile-priced home in Auckland decline from $715.11 a week in April 2017, to $687.37 in April last year, and to $651.42 in April this year.
That means the mortgage payments on a lower quartile-priced home in Auckland were $35.95 less a week in April this year than they were in April last year, and $63.69 a week less than they were two years ago.
Over the same period the after-tax incomes of first home buyers has been rising modestly but steadily, leaving them with another $33.04 in their pocket (per couple) compared to a year ago, and $68.96 a week better off compared to two years ago.
That combinations means that the mortgage payments on a lowers quartile-priced home would have been eating up less of typical first home buyer's take home pay.
Interest.co.nz considers mortgage payments affordable if they swallow no more than 40% of take home pay.
In April 2017, typical first home buyers in Auckland would have needed to set aside 44.8% of their take home pay to meet the mortgage payments on a lower quartile-priced home, which is considered significantly unaffordable.
By April 2018 that had dropped 42.1%. In April this year it was 39.1%, putting Auckland housing solidly back into affordable territory.
North Shore solidly unaffordable
Of course there are still parts of Auckland where typical first homes buyers would struggle to find something affordable.
The North Shore remains solidly in unaffordable territory with the mortgage payments on a lower quartile-priced home there eating up 46.5% of a typical first home buying couple’s take home pay. That is, however, a considerable improvement compared to the end of last year when mortgage payments on the North Shore would have eaten up more than half of their take home pay.
However Auckland West (Waitakere), Auckland South (Manukau), Papakura and Franklin are now all considered solidly affordable for first home buyers because the mortgage payments on lower quartile-priced homes in those districts would take up less than 40% of a typical first home buying couple’s take home pay.
And even Auckland Central and Rodney are now on the cusp of being considered affordable, with mortgage payments on lower quartile-priced homes in both districts within striking distance of falling under the 40% income threshold for first home buyers.
However the most unaffordable place in the country is Queenstown, where the mortgage payments on a lower quartile-priced home would take up 49.2% of typical first home buyers’ take home pay.
All other parts of the country remain well within affordable limits and typical first home buyers should be able to manage the mortgage payments on a lower quartile-priced home.
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