New Zealand home loan affordability improved in July by its biggest amount in 18 months to its best levels since September last year as fixed mortgage rates dropped and house prices eased, the Roost Home Loan Affordability report shows.
Affordability is set to improve further through the second half of 2010 if house prices keep falling in a ‘buyers market’ and further concerns about the global economy drive market interest rates lower. Personal tax cuts from October 1 are also set to further improve affordability.
The national median house price fell 1% to NZ$349,000 in July from June and is now down 3.2% from a record high of NZ$360,500 in March. The average two year mortgage rate fell to 6.98% in July from 7.18% in June and has fallen further since the end of July to around 6.75%.
Concerns about the growth outlook globally drove wholesale interest rates lower through July and early August. Banks passed some of these declines on in the form of lower fixed mortgage rates, despite the Reserve Bank’s increase in the Official Cash Rate to 3%. Variable mortgage rates have risen around 0.25% to around 6.25% in the last month.
The Roost Home Loan Affordability report measures the affordability nationally and regionally for income earners and households, taking into account house prices, interest rates and incomes. See all the regional reports here.
Queenstown more affordable than Auckland
Affordability improved significantly in Queenstown, Waikato/Bay of Plenty, Hawkes Bay, Nelson, Wellington and Canterbury because house prices fell. But affordability worsened slightly in Northland, Manawatu, Otago and Southland because house prices rose.
Auckland is now the least affordable area in New Zealand, taking that mantle from Queenstown for the first time since January 2002.
Affordability has been improving since December 2009 as house prices have flattened out and interest rates have fallen, the monthly measure calculated by interest.co.nz in association with Roost found.
“The combination of lower fixed mortgage rates and a buyers’ market is improving affordability,” said Roost spokeswoman Margaret Smith.
“Homebuyers are in a strong position in a market where house prices are flat to falling and the outlook for interest rates is more subdued,” Smith said.
The Reserve Bank lifted the Official Cash Rate (OCR) as expected to 3% on July 29, but also cautioned that the economic outlook had deteriorated and that future OCR hikes would be smaller and slower than it had previously forecast.
Wholesale interest rates have fallen around 40 basis points since then and financial markets are now expecting the OCR to rise just 50 basis points in the next year to around 3.5%. Most home owners are still on fixed mortgages, but more borrowers have chosen to float in the last year given floating rates at around 6.2% are cheaper than longer term fixed rates at around 6.75%. However, the gap has closed over the last month, making the fixed vs floating decision more evenly balanced.
The Roost Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80% mortgage on a median house improved to 59.5% in July from 61.3% in June and is closer to its 57.4% level from July 2009. This was the biggest improvement since January 2009 and takes affordability to its best level since September 2009.
Affordability hit its worst level of 83.4% in March 2008 just after house prices peaked and 2 year mortgage rates were close to 10%. Many home buyers moved early in 2009 to take advantage of lower interest rates and look for bargains, which improved the number of houses sold and raised prices. But house sales volumes have weakened in recent months as tax changes in the May 20 budget and softer economy have affected sentiment and activity.
Affordability is difficult in the central areas of Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but homebuyers in smaller provincial cities will find home ownership much more affordable. Households with two incomes are also in a stronger position. Affordability for the typical first-home-buyer also improved to 52% in July from 53.8% in June.
Household affordability better too
Meanwhile, affordability for households with more than one income improved to its best levels since September 2009.
This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house fell to 39.9% in July from 41. 2% in June. This measure assumes one median male income, half a median female income aged 30-35 and a 5 year old child that receives Working-for-Families benefits.
Any level over 40% is considered unaffordable for a household, whereas any level closer to 30% has coincided with increased buyer demand in the past. The survey’s measure of a ‘standard first-home-buyer household' found the proportion of after tax income needed to service the mortgage on a first quartile home fell to 25.1% in July from 26.0% in June. This measure peaked at 35% in June 2007.
This measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive.
Full regional reports are available below:
- New Zealand (159kb .pdf)
- Northland (159kb .pdf)
- Auckland (159kb .pdf)
- Auckland Central (159kb .pdf)
- Auckland North Shore (159kb .pdf)
- Auckland South (159kb .pdf)
- Auckland West (159kb .pdf)
- Waikato and Bay of Plenty (159kb .pdf)
- Tauranga (159kb .pdf)
- Hawkes Bay and Gisborne (159kb .pdf)
- Taranaki (159kb .pdf)
- Manawatu and Wanganui (159kb .pdf)
- Wellington region (159kb .pdf)
- Wellington City (159kb .pdf)
- Wellington Hutt Valley (159kb .pdf)
- Nelson and Marlborough (159kb .pdf)
- Canterbury (156kb .pdf)
- Christchurch (156kb .pdf)
- Central Otago Lakes (159kb .pdf)
- Otago (159kb .pdf)
- Southland (159kb .pdf)
| Regional home loan affordability comparison: | ||||||
| mortgage payment as a % of weekly take-home pay | ||||||
|
July-10
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June-10
|
July-09
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July-08
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July-07
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July-06
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|
| New Zealand | 59.5% | 61.3% | 55.3% | 76.6% | 81.6% | 70.7% |
| Northland | 57.8% | 53.7% | 56.7% | 77.7% | 81.0% | 66.2% |
| Auckland | 72.1% | 72.8% | 67.3% | 89.0% | 98.3% | 82.2% |
| - Central | 78.2% | 76.8% | 70.1% | 88.2% | 105.3% | 89.1% |
| - North Shore | 76.4% | 82.7% | 74.2% | 93.1% | 107.0% | 88.9% |
| - South | 72.9% | 72.4% | 68.4% | 89.7% | 93.0% | 80.3% |
| - West | 67.0% | 64.9% | 59.1% | 74.9% | 85.7% | 74.4% |
| Waikato/BOP | 57.1% | 59.5% | 55.5% | 77.6% | 80.0% | 68.2% |
| - Tauranga | 63.8% | 63.3% | 61.2% | 84.2% | 94.4% | 82.8% |
| Hawkes Bay | 50.7% | 55.6% | 49.7% | 71.1% | 76.0% | 63.8% |
| Manawatu/Wanganui | 43.0% | 41.4% | 39.8% | 57.4% | 59.7% | 50.5% |
| Taranaki | 54.1% | 53.9% | 49.7% | 65.0% | 66.2% | 58.3% |
| Wellington region | 60.8% | 65.2% | 55.7% | 77.4% | 79.2% | 69.4% |
| - City | 66.2% | 70.0% | 64.3% | 82.7% | 76.6% | 76.0% |
| - Hutt Valley | 53.1% | 56.6% | 50.6% | 68.0% | 74.2% | 63.6% |
| Nelson/Marlborough | 61.6% | 66.7% | 59.1% | 81.7% | 83.2% | 74.0% |
| Canterbury/Westland | 54.4% | 58.2% | 49.8% | 70.0% | 76.4% | 63.9% |
| - Christchurch | 60.1% | 63.9% | 53.9% | 75.0% | 82.9% | 71.0% |
| Central Otago Lakes | 71.9% | 78.0% | 72.5% | 137.6% | 115.5% | 97.1% |
| Otago | 45.2% | 42.8% | 39.3% | 58.4% | 58.2% | 51.8% |
| Southland | 38.9% | 32.5% | 33.7% | 42.4% | 48.0% | 35.9% |
Question and Answers about the report
How does interest.co.nz work out these numbers?
Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.
How is this survey different from the Massey University survey of affordability?
The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.
Why use a single median income?
It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. However, we have also calculated the household measures using a 'standard' household of 1 male median and 0.5 of a female median with one 5 year old child receiving Working For Family payments. We also have a first home buyer's household on two median incomes.
Interest.co.nz chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age.
Why is home loan affordability important?
It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.
About Roost Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists. Roost was established in 1996.
For more information please visit www.roost.co.nz
49 Comments
And beware of the upcoming sale of mortgages at cheaper rates by Kiwibank as they rush to boost the bubble with fresh borrowings underwritten by a stupid govt....suckers will bite at these special deals...the media will run with the BS that recovery is here..the building sector will leap in with a splurge of advertising which you will note has already started to deluge the silly box......but post the election expect the hangover to return...the prospect of higher rates and higher taxes...a return of news about ongoing mortgagee sales and misery for families trapped in property worth way less than their mortgage debts....and they have to contend with falling real wages....if they have work.
If you are a saver who avoided the bubble of stupidity...don't be suckered into this madness...wait it out...in the long run you will have saved more and prices will have dropped more.
"how many people out there have seen the build quality of homes in other countries"
I have some building experience, can't comment on US homes, but the building/materials standards of Aussie homes don't seem any better than ours. NZ's current building code is to a significantly higher standard, especially regarding weather tightness and earthquake resistance. They do use double brick which we don't but that's more to do with earthquake vulnerability. Can you elaborate.But why would you buy now if, as the report says, house prices are going to keep falling?
Unless you want to 'do an Olly' (which is the insiders term for immediately seeing the value of your housing investment decline) then why wouldn't you wait a year and buy cheaper?
"Its hard to see how house prices will fall another 10% as bernard predicts when the affordability is improving so much. "
Just analyse your own statement. The affordability can improve because:
A/ Prices fall
B /Interest rates fall
C/ Wages rise.
Or a combination of all three or a major change in one offsetting a counter trend in the other. e.g falling prices being offset by rising interest rates. Do you think that is possible?
Or High unemployment leading to more emmigration leading to lower house prices AND lower median wages.
So what Bernard has suggested is entirely possible, likely even as Bollard seems intend on raising interest rates (He's wrong)
PS no need to be calling folk idiots.
Yes the ongoing mortgagee listings should not be seen as an indication that the property sector is trapped in a deflation event...we should allow ourselves to be directed by the surveys and the spin and the BS...property is as cheap as it will ever get and if you don't rush in to buy right now you are a fool....see your bank today...they are there to help you!
An accurate prediction anon...although you need to allow for govt trickery...the underwriting of the kiwibank foreign borrowing is aimed directly at porking the property bubble long enough for them to be relected in 2011...expect the economy to enter a final dive post 2011.
I don't agree with everything that's said on this site but I'm not sure how an improvement in home affordability can be qualified as doomsaying. It sounds like good news for all those who wish to buy their own homes and could normally afford to but have been locked out of the market for several years (and for the next generation too). I'm pleased for them.
Yes if you're looking at it from a purely selfish individual perspective. But if you consider that the person who bought a widget for X will eventually pass their wealth on to their kids/family, then it's not so bad. If prices have dropped, the kids/whoever will get more out of the money even if there's less of it.
Charlie me old squid, good to see your back safe and sound from those wretched sun drenched islands with their vulgar glistening sands and cool blue waters not to mention jaywalking revenue collectors.
Annnnnnnyhow...... just thought we might have a catch up at some point as it seems we have a wittwle fweind in common...(oh the irony of using that word around you), I shall impart to you....... some of his leanings and social circle in due course .
I must say you and he have sooooo much in common I'd swear he might be you..... but that would not be possible now would it....... as he married his old money....!
Gotta run Charlie..... I'm heading up that anti Banks committee as in Rubber Johnny......pip pip ol boy.
What no mention of the RBNZ weekly home approvals data from yesterday?
Looks like I will have to sum it up then:
a) Lowest weekly approvals rate for any August week on record
b) Fewer than 5000 loan approvals - a massive 24.9% DOWN on the equivalent 13 week period in 2009
c) Values of approvals - a huge 23.1% DOWN on equivalent 13 week period in 2009
d) At 4963 approvals this is far, far below the then very low rates seen during August 2008 when last the housing market was sliding (rates then 6200-6300 per week).
This is all good news for the housing market right?
You probably need to qualify that statement - there are loads of CRAP rentals waiting for tenants and that are also on the market and strangely enough no-one wants them especially at the prices being asked.
There's only one way that impasse will be broken and that is for prices to fall significantly which will happen this spring/summer unless the banks try and spruik prices up with cheap mortgages but can't see it happening.
it'll be good when you have to be a registered member on this site or you can't make a post.
Sept 12 is the cutoff point i recall.
at least then i'll be able to sort out all these bloody anons. as they won't be able to get on and then i can ascertain who's up who and who's not paying?
i like champagne charlie above though...all those "hooray henrys" that he's impersonating are fortunately a vanishing species except ,it seems, on outlying islands in hawaii?
and, wally/wolly...stop talking nonsense!
RBNZ home loan approval data link http://www.rbnz.govt.nz/statistics/monfin/c16/data.html
re..registration making this a dull site..can't see how that works as you can still have aan alias just as long as it's registered..which will be ongoing after the 12th.
all that means is people can't steal other peoples aliases..which is how it was a few months back??
and Wally/wolly...here's something fresh in on Kiwibank and your fantasy about the Govt using them to re-ignite the housing market.
get back to pruning those grape vines wally after reading this:
momentum wanes
By Jenny Ruth
Thursday 19th August 2010
Kiwibank continues to grow its mortgage book at a much faster pace than its market share but its momentum continues to wane.
Kiwibank's latest general disclosure statement (GDS) shows its mortgage book grew by $300.7 million in the three months ended June to $9.66 billion.
That compared with the $364 million growth it achieved in the March quarter which was its smallest quarterly increase since the June quarter of 2008 when its mortgage book grew $250 million.
Over the year ended June 30, its mortgage book grew by $1.87 billion.
Using Reserve Bank figures as a proxy for the market (actual figures won't be available until all the home lending banks have lodged their June quarter GDSs and Kiwibank is the first to lodge its GDS), Kiwibank's share of mortgage lending by registered banks rose to 5.87% at June 30 from 5.72% at March 31.
Kiwibank's continued growth is obviously coming at a cost to profit since its June quarter net profit fell 57% to $10.1 million, taking net profit for the year ended June to $45.8 million, down 27.9% from the previous year's $63.6 million.
The year-earlier result included an $11.1 million one-off gain from selling assets to another subsidiary of its parent, New Zealand Post.
Kiwibank's net interest income fell 26.7% to $33.3 million in the latest quarter while its charge against profit for bad loans rose to just below $5 million compared with $4.6 million in the same quarter a year earlier.
Of its total mortgage book, 20.3% had loan-to-valuation ratios (LVRs) above 80% at June 30, down slightly from 20.4% three months earlier, while those with LVRs above 90% eased to 6.8% from $7.5%.
Of the loans with LVRs above 90%, $270 million are government-backed Welcome Home Loans and the rest of its loans with LVRs above 80% are covered by mortgage insurance.
Kiwibank's average home loan balance at June 30 was $148,000 compared with $142,000 a year earlier.
Two more of my extended family are off to OZ this week on a one way ticket, one of them rents a 1 bdrm flat on his own and the other shared a 2 bdrm flat. So there are two less tenants and one vacant flat. They've both gone to jobs in the mines in WA and nearly wet themselves at the pay they'll be getting. The sort of $ they could only dream about in NZ as unskilled young men. I imagine they're not alone. They're going to live with family friends over there who have been living there for at least 5 years earning big bucks driving trucks, send most of their money home to pay off their mortgage and will come home soon to a mortgage free home. These friends would otherwise still have a mortgage going into retirement if they'd stayed in NZ. I can totally see the attraction. But it's horses for courses.
I am told about AUD30 an hour..........after tax, no idea. But these guys were earning about half that here and with no prospects. Where they're going this is entry level stuff with scope for advancement if they stick at it and are any good. The truck drivers are earning more than that, this is the completely unskilled I'm referring to. How true this is, I don't know but I can't see them making the effort to go there and do it for no more or little more than they were earning here in NZ.
I reckon so too. Considering one of them has been on and off the dole since leaving school this is a major advancement and could set them up for life if they play their cards right. Simply pointing out that there are opportunties in OZ for such people that are clearly not in abundance here. Hence, I don't blame them for going. Good luck to them, hopefully it will be the making of them.
Wally/Wolly is currently sitting his real estate exams so he can be fully fledged and qualified to handle the rush and huge price rises just around the corner, when the market re-ignites!
apparently it's a conspiracy between national and kiwibank ( that they're also trying to get rid of?)....so buy now before wally and the prices hit the market and it's tooooooo late , maaaaaaaate!!
oh, and by the way, westport airport has the biggest problem with aircraft birdstrike in the whole country....and that's another conspiracy between national and kiwibank that needs attention, i say!!
i'm originally from nelson and we always saw you" marlboroughites", Wally/Wolly as slightly slower than the nelsonians..
to answer your questions,wally/wolly..i think the govt. is injecting capital into kiwibank for political spin purposes and to ensure the continuity of it's cashflow..can't afford anymore SCF debacles.
also they aren't injecting capital in directly..they've just promised to be on standby if kiwbank ever needs govt back up.....this allows kiwibank better g/teed access to hot money funding from overseas i.e maintains their funding streams and ergo, survivablity so they can eventually be sold as a profitable going concern.
right that's enuff for you now ,Jung Wally/Wolly..go and pat the ducks and make sure you've got your cap on straight...you marlboro men were always a bit suss!
My you are getting creative Rob...the govt underwriting of Kiwibank debt will not make the bank a better buy for anyone without that backing being a permanent feature! The purpose is to pork the activity up to the election.
Post Nov 2011 you might get a period of calm as Obama moves to buy his re-election in November 2012...beyond that, it is anyone's guess as to how far the US falls. If Barry gets back in, he will not give a toss what damage he does. If a Republican fool wins...look for some really serious cost cutting.
Which ever way you see it going...Noddyland can expect a whole heap of trouble...with pain for those who gambled on the Bubble.
OK I'm going to run the gauntlet and post on a property thread.. I'm nervous already !! ;-)
Prediction: Property prices are going up for a short time and then followed by a severe crash. Price rises will be most noticeable in Akl and Wellington as people migrate away from other smaller places in search of employment.
Reason: Money will become even cheaper than it is today. Swap rates are already diving, yeilds on Fed auctions diving (10year 2.5%) etc . Global interst rates will stay low as central banks try a last attempt at reinflating economies by printing more money. Hot inflows of cheap money will temporarily reinflate asset prices around the world incl NZ.
Also realestate will be a reasonable hedge against total loss (but you will loose) when the double dip hits.
OK, I'm ouuta here.
At current valuation levels we are being collectively fleeced by The Auckland City Council who in turn supply Capital Value information to the ARC.
I realise this is quite irrelevant to the topic at hand.... but having sought registered valuation on my own property recently ( not for selling purpose) it would appear they (Auck City) are at least 100k wide of the mark.
This has taken in the rental valuation potential also in case anyone proffers that as the reason for being well.... robbed by legal theft.....in a nutshell.
The objection process is fraught with manholes but I would urge those who feel the rate increases are not in harmony with falling property values to lodge their objection with prejudice.
The link is readily available at Auckland City Rates.......objections... and can be completed online.
I have no complaint with falling values as it creates affordability , but come on Ak City you can't have it both ways.
I would concur...... your name...... but that doesn't mean I should lie down and have a cry over it.... for f..k's sake that's exactly what's wrong out there...apathy apathy and more apathy.
Well here';s a flash for Banksie ...stick your party central up your pompous ring piece and have a barbie in your back yard ya jagup.
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