Getting harder to buy a first home in Auckland as rising property prices offset falling interest rates and incomes stay largely flat

There was good and bad news for first home buyers in November with housing affordability worsening in some regions and improving in others, according to Interest.co.nz’s Home Loan Affordability Report.

Of the 12 regions monitored by the report, affordability for first home buyers improved in six regions and worsened in the other six.

Those regions where affordability improved were Northland, Manawatu/Wanganui, Wellington, Nelson/Marlborough, Otago and Southland, while affordability worsened in Auckland, Waikato/Bay of Plenty, Hawke’s Bay, Taranaki and Canterbury/Westland.

The report tracks how much of their weekly after-tax pay a typical working couple aged 24-29 would have to set aside to meet the mortgage payments on homes purchased at the REINZ’s lower quartile selling price in each region.

This takes into account the monthly regional movements in house prices and household incomes, and changes in mortgage interest rates.

A feature of the market over the last year has been falling mortgage interest rates, with the average two year fixed rate offered by the major banks (the figure used in the Home Loan Affordability Report’s mortgage payment calculations) dropping from 5.98% in November 2014 to 4.81% last month.

Unfortunately the benefit of falling mortgage interest rates has been offset by rising housing prices in many areas, particularly in Auckland where the lower quartile selling price has increased from $548,300 in November last year to $614,700  last month, an increase of $66,400 (12.1%) in 12 months.

That would have pushed the weekly mortgage payments on a lower quartile priced home in Auckland from $750.24 a week in November last year to $757.60 a week last month, as the benefit of lower interest rates was more than wiped out by rising property prices.

Over the same period, the median take home pay for a typical working couple in Auckland aged between 24 and 29 (the income bracket used in the Affordability Report) increased from $1509 a week to $1531 a week, a rise of just $22 (1.5%) a week.

Auckland remains the only region in the country where housing remains seriously unaffordable for first home buyers.

The report says housing is considered affordable when mortgage payments take up no more than 40% of take home pay.

In Auckland the mortgage payments on a lower quartile-priced house would take up 49.5% of a typical first home buying couple’s take home pay, and that’s before allowing for other property related expenses such as rates, insurance and maintenance.

Housing has only become unaffordable for first home buyers in Auckland since July 2013, when the mortgage payments on a lower quartile priced home would have taken up 38.73% of a typical first home buying couple’s take home pay.

Since then the lower quartile selling price in Auckland has jumped form $444,000 to $614,700 (up 38.5%), pushing weekly mortgage payments up from $576.62 a week to $757.60 (up 31.4%).

Over the same period the median take home pay for a first home buying couple has increased from $1489 a week to $1531 a week, a rise of just 2.8%.

After Auckland the next most expensive region for first home buyers in November was Central Otago Lakes where the mortgage payments on a lower quartile-priced home would have taken up 28.2% of a typical first home buying couple’s pay, which was well within the affordable limit.

In Wellington the mortgage payments on a lower quartile-priced home would take up 25.6% of a typical first home buying couple’s take home pay and in Canterbury it would be 27.9% .

See the charts below to compare the affordability figures for all regions:

Interest.co.nz Home Loan Affordability Report

For Typical First Home Buyers

November 2015

 

 

REINZ Lower Quartile Selling Price Weekly Mortgage Payments Median Weekly Net Income Mortgage Payments as % of Net Income
Northland $265,700 $295.84 $1415 20.9%
Auckland $614,700 $757.60 $1531 49.5%
Waikato/BoP $305,500 $348.50 $1423 24.5%
Hawke’s Bay $218,300 $233.13 $1353 17.2%
Manawatu/Whanganui $175,900 $186.19 $1437 13.0%
Taranaki $232,400 $251.79 $1437 17.5%
Wellington $345,800 $401.82 $1567 25.6%
Nelson/Marlborough $306,400 $349.69 $1424 24.6%
Canterbury/Westland $362,300 $423.65 $1517 27.9%
Central Otago/Lakes $342,700 $397.72 $1410 28.2%
Otago $214,100 $227.57 $1410 16.1%
Southland $140,400 $148.61 $1438 10.3%
All NZ $304,750 $347.51 $1497 23.2%


Auckland Central Auckland North Shore Auckland South Auckland West Wellington City Hutt Valley Porirua Kapiti Coast Whangarei New Zealand Hamilton Tauranga Rotorua Napier Hastings Gisborne New Plymouth Palmerston North Wanganui Nelson Christchurch Timaru Wairarapa Queenstown Dunedin Invercargill

*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.