Falling house prices shave $50.97 a week off mortgage payments for first home buyers in Auckland: Home Loan Affordability Report

By Greg Ninness

The prospect of owning their own home improved slightly for first home buyers in Northland, Auckland, the Waikato and Taranaki last month, but worsened for first home buyers in all other regions of the country.

With mortgage interest rates remaining largely flat, the main drivers of changes in first home affordability have been movements in lower quartile selling prices, according to interest.co.nz’s Home Loan Affordability Report for August.

It showed that the REINZ’s lower quartile selling price (the price point at which 25% of sales are below and 75% of sales are above) declined in Northland, Auckland, Waikato and Taranaki in August compared to July, but increased in all other regions of the country.

In Auckland the lower quartile price dropped to $640,000 in August.

That was the fifth consecutive monthly decline in the region’s lower quartile price since it peaked at $680,000 in March.

The slide in Auckland’s lower quartile prices means it has now fallen below where it was 12 months ago, at $655,000 August 2016.

That fall in prices is evident throughout the region, with lower quartile prices in August below their previous highs in all districts and below where they were 12 months ago in Central, South and  West Auckland, but still up compared to August last year in Rodney, the North Shore, Papakura and Franklin.

While prices have been declining over the last few months, mortgage interest rates have been largely stable, with the average of the two year fixed rates offered by the major banks staying within the 4.82% – 4.84% range between February and August, up slightly from its record low of 4.35% in May last year but still well below its long term average.

Separate 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

The Home Loan affordability report estimates that this combination of falling prices and relatively stable interest rates would have reduced the mortgage payments on a lower quartile-priced for a typical first home buying couples in Auckland by $50.97 a week since the lower quartile price peaked in March.

Unfortunately the drop in prices is still not enough for homes to be regarded as affordable for typical first home buyers in Auckland.

As well as movements in interest rates and house prices, the Home Loan Affordability report also tracks movements in incomes, and calculates how much of their weekly take home pay a typical first home buying couple would need to set aside each week to make the mortgage payments on a lower quartile-priced home.

Housing is considered affordable if the mortgage payments take up no more than 40% of their take home pay, and unaffordable when mortgage payments take up more than 40% of take home pay.

The report estimates that when Auckland prices peaked in March, mortgage payments on a lower quartile-priced home would have taken up 46.1% of a typical first home buying couple’s take home pay, well into unaffordable territory.

But affordability has steadily improved as prices have fallen, and in August the mortgage payments would have been eating up 42.6% of typical first home buyers’ take home pay.

So although affordability has been improving in Auckland , house prices have quite a bit further to fall (and interest rates would have to remain low), before housing could be considered affordable in Auckland.

Outside of Auckland, the only other place where housing is unaffordable is Queenstown, where first home buyers would have even more of a struggle buying their first home than they would in Auckland.

That’s because lower quartile prices in Queenstown are even higher than they are in Auckland ($677,000 in August) while wages are lower ($1506.46 a week after tax for a typical first home buying couple in Queenstown, compared to $1612.82 in Auckland).

That means a typical first home buying couple in Queenstown would need to set aside almost half (49%) of their net pay each week to service the mortgage on a lower quartile-priced home in the town.

Fortunately housing remains well within affordable levels in all other parts of the country.

In Wellington City, mortgage payments would only take up 27% of a typical first home buying couple’s take home pay, in Christchurch it would be 21.4% and in Dunedin 19.7%.

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