A big rise in the lower quartile selling price in Auckland pushes first home ownership further out of reach

Buying a home became significantly more difficult for first home buyers at opposite ends of the country last month following strong rises in lower quartile selling prices in Auckland, Waikato/Bay of Plenty and Southland, according to the latest Home Loan Affordability Report by interest.co.nz

The report says the Real Estate Institute of New Zealand’s ‘s lower quartile selling price hit a new record high last month, driven mainly by exceptionally strong price rises in all three regions, which more than offset the benefit of falling interest rates.

The REINZ’s national lower quartile selling price (the price point at which 25% of sales were below that figure and 75% were above it) hit an all time high of $309,000 in September, up from $299,125 in August.

That was mainly driven by strong increases in lower quartile selling prices in Auckland, where it shot up strongly after falling for each of the previous three months, to hit an all time high of $630,500 in September, compared with $600,700 in August.

There were also strong rises in the lower quartile selling prices in Waikato/Bay of Plenty, where it increased from $271,700 in August to $293,800 in September, and in Southland, where it increased from $135,900 in August to $157,900 in September.

September’s lower quartile selling price set new all time highs in all three regions and the strength of those price rises more than wiped out the benefit of falling interest rates on the mortgage payments that would be required to purchase a lower quartile priced home in them.

However in all other regions around the country September’s lower quartile prices were below their previous highs.

The Home Loan Affordability report calculates mortgage payments* at the average of the interest rates offered by the major banks on two year fixed rate mortgages.

That has declined every month since May, when it was 5.61% and came in at 4.97% for September.

But even with the lower interest rates, the strong rise in prices would have pushed the mortgage payments on a lower quartile priced home in Auckland to $791.12 a week, compared to $759.04 a week in August and $675.72 a week in September last year.

That is an increase of $115.40 a week (17%) in 12 months.

Consuming 52% of take home pay

According to the Home Loan Affordability Report, the median after tax pay of a working couple in Auckland where both are aged 25-29, was $1528.73 a week* in September, which means the mortgage payments required to purchase a lower quartile priced home would consumed nearly 52% of their take home pay.

That suggests that even a lower quartile priced home would be severely unaffordable for a typical first home buyer couple in Auckland because mortgage payments are considered affordable when they take up no more than 40% of take home pay.

Their situation would be even worse once other property related costs such as rates, insurance and maintenance are factored in.

However Auckland remains the only region where lower quartile priced homes would be unaffordable for typical first home buyers, with mortgage payments on lower quartile priced homes taking up less than a third of take home pay in all regions except Auckland.

Even after allowing for last’s month’s jump in the lower quartile selling price, the mortgage payments on a lower quartile-priced home in Central Otago/Lakes (the second most expensive region in the country) would take up 31.2% of typical first home buying couple’s take home pay, followed by Canterbury (27.6%).

Twice as affordable as Auckland

Of the remaining regions, the mortgage payments on a lower quartile priced home would take up between 20% and 25% of a typical first home buying couple’s take home pay in Northland (21.3%), Waikato.Bay of Plenty (23.8%), Wellington (24.7%) and Nelson/Marlborough (24.8%), making homes for first homes buyers in these regions at least twice as affordable are they are in Auckland.

In the most affordable regions of the country, mortgage payments on a lower quartile-priced home would take up less than 20% of a typical home buying couple’s take home pay. These were Southland (11.8%), Otago (16.4%), Manawatu/Wanganui (13.5%), Hawkes Bay (16.6%) and Taranaki (17.6%).


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*Home Loan Affordability Report methodology:

The interest.co.nz Home Loan Affordability Report calculates the mortgage payments on homes if they were  purchased at the REINZ’s lower quartile selling price in each region, and then calculates how much of a typical first home buying couple’s income the mortgage payments would consume.

The mortgage payments are based on a 25 year mortgage at the average of the major banks’ interest rates for a two year fixed rate loan, while typical first home buyers’ after tax incomes in each region are based on the regional median incomes for couples where both are aged 25-29, which are taken from Statistics NZ’s Linked Employer-Employee Data Survey.

The deposits needed to buy a lower quartile-priced house in each region are calculated as the lesser of 20% of the purchase price, or the amount that would be accumulated if the couple saved 20% of their net income for four years, and earned interest at the average 90 day bank deposit rate.