| interest.co.nz |
| Home Loan Affordability Report |
| March 2023 |
The latest figures suggest very little change has occurred in housing affordability for first home buyers over the last six months.
Housing affordability is affected by three main factors - house prices, mortgage interest rates and household incomes. Interest.co.nz tracks all three of those measures for typical first home buyers to get a standardised affordability measure.
Here's what's been happening with all three of those indicators:
House Prices
Although it's median house prices that usually get the most scrutiny it's lower quartile prices, the price point at which 75% of sales are above and 25% are below, representing the bottom end of the market, that's of most interest to first home buyers.
Real Estate Institute of NZ figures show the national lower quartile price peaked at $670,000 in November 2021, and by March 2023 had declined by $85,000 (-12.7%) to $585,000.
By comparison, the median price, which also peaked in November 2021, at $925,000, had declined by $150,000 (-16.2%) to $775,000 by March 2023.
Significantly, the lower quartile price has shown very little movement between December last year and March this year, dropping to $585,000 in December, dipping down to $567,000 in February this year then back up to $585,000 in March.
So most of the decline in the lower quartile price occurred between November 2021 and December 2022.
Mortgage Interest Rates
Back in November 2021 when prices peaked, the average of the two year fixed mortgage rates offered by the major banks was 4.08%.
It then rose steadily to a hit a high 6.58% in December last year and has since fallen back slightly to 6.44% in March this year.
Household incomes
Interest.co.nz estimates the national, combined, median after-tax pay for couples aged 25-29 and working full time was $1818 a week in November 2021, when lower quartile prices peaked.
By March this year that had increased to $1947 a week, giving them an extra $129 a week (+7.1%).
What does all that mean for affordability?
Firstly, the drop in prices meant the amount required for a 10% deposit on a home purchased at the national lower quartile price dropped from $67,000 in November 2021 to $58,500 in March 2023, while a 20% deposit would have dropped from $134,000 to $117,000, so buyers would find it easier to get a deposit together.
That also means they would need to borrow less.
In March 2023, buyers with a 10% deposit on a lower quartile-priced home would need to borrow $526,500, down from $603,000 at the November 2021 peak, while buyers with 20% deposit would need a $468,000 mortgage in March 2023, down from $536,000 in November 2021.
So by those measures, first home buyers are significantly better off now than they were when prices peaked in November 2021.
Unfortunately higher interest rates are spoiling the party by pushing up mortgage payments.
Interest.co.nz estimates the mortgage payments on a lower quartile-priced home purchased with a 20% deposit at the market peak in November 2021 would have been $596 a week. By March tis year that would have increased to $678, up by $82 a week (13.8%).
If the buyer had a 10% deposit the mortgage payments would have increased from $770 a week to $861, up by $91 a week (+11.8%).
However the pain of higher mortgage payments would have been partially offset by the rise in incomes that has already been noted above.
Interest.co.nz tracks affordability as the percentage of after-tax pay that's eaten up by mortgage payments, with payments that take up 40% or more of income considered unaffordable.
This shows that at the market peak in November 2021, mortgage payments on a lower quartile-priced home purchased with a 10% deposit surged past the 40% of after-tax income threshold to 42.4%, up from just 30.2% a year earlier.
It has stayed above 40% ever since, but has been relatively stable at around 44% since October last year.
For buyers with a 20% deposit, affordability was 32.8% of income in November 2021 and has remained around 35% since October last year.
What those trends mean is that nationally, housing is still affordable for first home buyers if they have a 20% deposit, but could be considered unaffordable for those with just a 10% deposit.
And although affordability has worsened since the market peak, it hasn't worsened by much, thanks to rising wages.
However, those are national figures and there are substantial regional differences.
In Auckland, the country's largest housing market, aspiring first home buyers can probably forget about buying a home of their own regardless of whether they have a 10% or 20% deposit unless they are on higher than average wages. Those in the Bay of Plenty are heading towards a similar situation.
And buyers with just a 10% deposit and average incomes would likely struggle to get a home of their own in Northland, Waikato, Hawke's Bay, Wellington and Canterbury.
The tables below give the main affordability measures for typical first home buyers with either 10% or 20% deposits in all regions.
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58 Comments
There are some interesting facts buried in there
Fhb housing prices bottomed in February and rose over 3 percent since. Its no wonder that more Fhb want to get on board and the RB is easing the deposit requirements
The monthly mortgage outgoings on a 20 percent deposit have changed a mere two percent since the market peak from 33 to 35 pct
Are we there yet, Is it a good time to buy?
What happens to "green shoots" that sprout just before winter?
Let's model rent vs own per week.
Rent = $600. Less interest being earned on 20% deposit savings after tax = $100. Net cost per week $500
Own = Lower quartile. 20% dep. Mortgage $678, Rates $60, Maintenance $50, Insurance $50. Net cost per week $838
Still a $338 gap in favor of renting which put into savings would be $17,576 for the year. Based on these figures it's still not a good time to buy (if you are purely looking at the financial calculations)
How much of that mortgage payment is principal, and should thus be compared to the savings figure? Even making allowance for prices dropping, if you hold it's not zero-valued.
Just because it's cheaper to rent doesn't mean it's better to, in the long run.
Good points, well said
I don't think it's a bad time to buy a home, as long as it's a primary residence. I think it's a terrible time to buy an investment property! It's looking more probable that labour's will get reelected...then what? The government want a chunk of all those juicy capital gains and boomer treasure.
"Juicy capital gains"
Isn't that an admission of future gains Tom. There would be a valuation date for existing owned assets and CGT will not be retrospective to past gains.
When the market starts to hot up just a little, then more buyers will see that.
It's not like all capital gains have been wiped out. The vast majority of property owners still have made decent capital gains on their properties above the inflation rate.
And it is likely that house prices will start rising again at some point, especially if zero tax changes are made and we keep repeating the mistakes of the past in regards to the housing market.
There will be future capital gains, given a long enough time frame. With a DTI in place next year and no interest deductibility, I think moderate growth will be around 3%pa, once the uptick eventually arrives. I think the hedonistic growth of the last 20 years will be resigned to history
At 3 pct then house prices double every 23 years. The house they buy will quadruple over their young buyers lifetime. By then they have raised a family and ready to retire, the house paid off after 25 years. Thats my take on it.
Simplified circumstances as some will trade up and some will add an investment property. Another variable is high inflation, which beefs up home prices over the longterm.
I'm in favor of that outcome. The problem we have know though, is that the base price it too high. Hence prices will stagnate for a long time. I'm guilty of applying too much logic into my economics and always get surprised by people's emotions... hence I will not be totally surprised if house prices go up again. The property market can be a very strange place :-)
I believe a stagnant go nowhere market still works over the longterm and I say that without any motive.
There was a piece over the weekend on tvnz about pensioner poverty. Everyone of the interviewees were paying rent that eats up their super
Some people have the discipline to save and invest in shares or business instead of a house. So there are options.
Does highlight there are very good economic reasons to make housing affordable once again, including using public and private methods used in the past to make them affordable for many of today's older generations. Especially given the pension is predicated on people living in a mortgage free house.
Treating it as a welfare scheme for speculators instead has been very detrimental to our society.
"Including using public and private methods used in the past to make them affordable"
Can I ask you to be specific
Yeah, the thing to do is compare non-recoverable costs - that is, compare rent to mortgage interest + rates + insurance + basic maintenance. But even if the rent is cheaper than the non-recoverable costs of ownership, it's not straightforward that renting is better. In my case the non-recoverable costs would be pretty much the same regardless of whether I rented or owned my house. But given that I'm in the lucky position where I can actually afford mortgage payments that include principal, then the question becomes 'what would I rather spend that extra money on?' I could invest it in shares and that would probably be wiser than investing it in a single asset from an investment perspective. But spending it on principal also buys me housing security and the ability to decorate to my choosing and plant fruit trees and not have to have landlord inspections, and those things have quite a lot of value to me (though of course they might not to others).
Cool, that's numbers on today's figures. Now what happens over the next 25 years when wages and rents go up? Assume wages/costs increase 5% p.a. for simplicity.
- Rent $600 increasing at 5% P.a = $1.6m paid in 25 years.
- $500k Mort @ 6% rate = $680 p/w. Increase payments by the dollar increases of rent. Paid off in 20 years, total paid = $860k.
- Rates $160k, Insurance/Maintenance $132k each.
- Total = $1.3m
Invest savings between rent/own = compound gains of $820k assuming a 7% return (average 20yr NZX50) and a starting deposit of $125k (20% on $500k mortgage). So renter's net = $780k vs $1.3m or $520k better off.
But what is the house worth? Assume $625k starting point, it falls 20% in 1st year to $500k. Then increases 3% p.a. By year 25 it's worth $1m freehold. Pay $1.3m over 25 years for asset worth $1m or Pay $1.6m in rent for $820k cash.
Don't forget that a lot of FHB like myself get flatmates in as well to help. If you add one or 2 renters at $150 a week less tax it likely makes the home figures a bit brighter.
Again works for the first family home but investors are still screwed with the removal of interest deductibility.
House price’s are falling at pace if you purchase a property today in a year from now that property will probably be worth around 20% less. I told many people this at the end of 2021 the people who did not listen have seen the equivalent of 20% deposit disappear most sitting in negative equity.
FHBs still have to weather the same rising costs of living as everyone else. A mortgage that goes up by a little bit is still a stretch if everything else goes up a lot.
Not only that, but if we start to see job losses as well. Also, are student loan deductions factored into the after tax income? Bet many FHB would have a student loan.
and most FHB aren't yet into their late career with high-end pay
Two of the measures, house prices and incomes have improved since the peak. And the third, int rates will be on its way soon if you believe what kiwibank says.
And all I can do is keep on telling you
I want you (I want you)
I need you (I need you)
There ain't no way I'm ever gonna love you
Now don't be sad (don't be sad 'cause)
'Cause two out of three ain't bad
Now don't be sad ('cause)
'Cause two out of three ain't bad
> I need you (to sell my overpriced house to)
RIP Loaf (and the housing market)
I believe he was generally known as Meat
Hi Greg, is there a place to see the data behind this? I watch Wairarapa and am really surprised that Wairarapa has rapidly fallen from one of the more unaffordable areas ( on account of low incomes) to now being one of the more affordable areas, obviously because of the very low lower quartile price. At a glance $380,000 seems a very low price as there are vertically no appartments here. Very good news for young families if this is correct.
I lived in Masterton for a year. The burglars and car thieves basically pushed me out.
I'd suggest it's not plural.
More than $100,000 worth of stolen goods have been recovered from a residential address in Masterton.
A 45-year-old man was arrested, and charged with possession of methamphetamine and resisting police.
https://www.rnz.co.nz/news/national/488790/100-000-of-stolen-goods-foun…
Unfortunately higher interest rates are spoiling the party by pushing up mortgage payments.
This is a good thing. Higher interest payments on a lower mortgage is what many of us oldies had (19%) and what we need to get back to.
The advantage was we had lower debt, so every spare dollar went off the mortgage and had an immediate impact. No way did we spend up (no we didn't buy coffees) as it was far more worthwhile reducing debt - and the light at the end of the tunnel was at least visible.
Pity the poor sods now.
No coffees but cigarettes and alcohol were consumed by your generation far more than current generation.
also house prices were 3x average income rather than 9x
Point missed. I understand why the current mortgage holders see little point in saving on the coffees (or whatever). A coffee on a $600k mortgage is lot different than on on a $30k mortgage -regardless of inflation.
And I'm not being virtuous, just understanding why there is a different attitude to saving the pennys and dumping them off the mortgage. I could see the difference it made, hard to see a diff with a mortgage of today sizes.
Ignoring of course that it was probably a 50c coffee vs a $6 coffee. Assuming a coffee a day, $186.50/$30k vs $2.2k/600k is 0.36% vs 0.6%, its really not that much of a difference.
Exactly. But you will never win when you are up against those tired old Boomer tropes and cliches.
you'll get no argument from this boomer, we've had opportunity handed to us on a plate and made a hell mess of everything for those who follow...
I'm impressed how high the median after-tax pay is in regions that I would not expect to have any high paying jobs.
Southland $1964 ?
Is it skewed by workers whose jobs are actually in the larger centres nearby? Median is not so easy to skew.
median income is based on the combined, median after-tax pay for couples aged 25-29, if both work full time.
Suggests it's estimated based on an 'ideal' FHB couple.
Minimum wage at 40 hours/week is 756/week after tax. For a couple it's 1512/week. You'd only need to be paid a bit over minimum wage and do a little overtime at time and a half to get there.
Assuming no overtime and both partners earning the same 1964/week after tax is a salary (before tax) of 65k/year or $31/hour. I haven't been looking for a job down south but that would seem achievable. That's the pay of a teacher with 4 year's experience.
Note that this also excludes any Kiwisaver deductions.
Edit: added a few clarifications.
That's AFTER TAX so that is nowhere near minimum income. There is no chance those numbers are right for the regions.
Minimum wage is 728/week in the hand, with no student loan.
Which is the $17/week more than a graduate teacher after their student loan is taken out. No overtime for them, and [particularly in the early years] no 40-hour week also!
The calcs don’t take into account student loans do they. There’s a pretty good chance, on average, that at least one person in a couple relationship, aged 25-29, will still have a reasonably significant student loan left. Of course that not only affects mortgage repayments but also ability to save a deposit.
But hey I have raised this several times in the past. Can solve it by raising the age assumption to 29-33, a much more realistic age for first home ownership these days.
I agree, it should really be taking into account wages in the hand after tax, student loan repayments and Kiwisaver. I don't think such a data set exists though.
For what it's worth in Southland student loans are likely to be lower on average due to the local polytech (SIT) having zero tuition fees for many courses, and I assume a lower ratio of jobs that require a tertiary education.
Interesting that Southland could be collateral damage of the Te Pukenga unification of polytechnics, if TPK takes away their competitive advantage of zero tuition fees. Wonder if this will detrimentally affect the availability of young workers in the market too. Maybe we'll see older farmers and business owners protesting for young people to have zero tuition fees like they themselves had back in the day?
Yeah they seem hard to believe. But I guess some agricultural sector jobs pay reasonably well?
All my numbers are after tax but without any Kiwisaver, which I assume is the same as the table in the article as it says after tax, not after tax and Kiwisaver, in which case they'd need to specify a contribution percentage.
Minimum wage is 22.7/hour or 908/week pre tax, or 756/week after tax
(also without Kiwisaver @ 3%)
Yeah, it does seem odd given that the median hourly earning for wage and salary earners is ~$30. (https://www.stats.govt.nz/information-releases/labour-market-statistics…). To make $1964 after tax, both partners would have to be earning $65k each. But given a median of $30 an hour, a median full time wage would be $62,500. It seems unlikely to me that people at the beginning of their career living in Southland would be earning more than the nationwide median full time wage.
Correct. $30 an hour is a well paying job for anyone of any age so the chances of BOTH of you are on that or better are next to nil. Half the population are on less than that, how else could you explain the number of people basically forced to rent.
How is $30/h considered well paid? Come to Aus and you can be on $35 driving a forklift or basically any job that isn't bare basics. And they have way better over time and weekend rates.
It would be interesting to know what houses first home buyers where buying , ie how many where off past fhbers trading up, how many are currently rentals and how many where new builds.
If house prices drop another 10% that will be about 35% down for Akl/Wgtn etc, at that point we may well see a massive shortage of rentals if Labour get back in, as FHBers buy ex rental houses, and the rental pool falls even further.
Strange position Labour/market finds itself in, FHBers cannot afford prices and Investors cannot make any money due to tax regulations. Solving one most likely makes the others position worse.
I feel Labour may have to have another bonfire and tear up its interest rate deductibility rules yet. while this may save existing landlords its still probably not enough to entice new ones in , who would also be competeing with .... FHBers
Wicked problem!
btw I pretty much said this to a few government bureaucrats about 9 months ago, they either couldn’t understand it or didn’t want to. I told them there will be a private rental crisis in 2-3 years the way things were / are going.
I agree. Though the cause is immigration, as those FHB are [presumably] moving out of occupied rentals.
Opening the floodgates is going to cause way more problems than it solves - and Stats NZ has convoluted the stats on those coming in it's hard to make out where they are all going - certainly none in my well-paid high-tech industry as yet (the vast majority of remote applications we get are from a single nation, and all so far were rubbish).
Where are the immigrants going (fields and region info would be nice)?
If a FHB buys the house, it doesn’t disappear. It might come off the rental pool, but so does the FHB. So demand and supply move together.
In 1991, there were about 1.28 million properties and a population of 3.53m, which equated to a property to people ratio of 0.361.
Thirty years later, in 2021, there were 1.87m properties and a population of 5.1m, which was a property to people ratio of 0.367.
Demographics matter though, in terms of both age and relationship status. Five or six people in a three bedroom house is not a big deal if that's two adults and their four young kids - kids can share a room. But if it's six adults? And not all of those adults are members of a couple?
So the same numbers on the face of it could still be hiding a housing shortage, if we think of adequate housing as not having to share a bedroom as an adult with someone you are not in a relationship with, and not (as an adult, particularly as an older one) needing to share a house with large numbers of (possibly unrelated) adults.
Census data from 2018 showed the occupancy of rentals and owner-occupied properties were almost identical – with an average of 2.7 and 2.8 people in an owner-occupied home and rental respectively.
https://www.stuff.co.nz/business/131589273/landlords-planning-to-quit-b…
Yes, you're going to have larger families typically renting, and smaller "empty nesters" typically owning. You might be surprised how many aspiring FHB couples are renting 3 bedroom homes to themselves because a) they can afford to and b) they don't want flatmates.
The article must be assuming FHBs pass the bank stress test at significantly higher interest rates, before they can potentially afford to buy.
Big assumption!
So it’s even worse than it looks in the article.
And this is just to afford a lower quartile price home, for heaven’s sake. In Auckland that effectively means a 2 bedroom shoebox.
Auckland North Shore, 67.9.% of after tax income, lol.
Terrible.
Ooft I got excited seeing 80k deposit to get a home in Auckland but then realized I was looking at the 10% deposit table... never mind.
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