There are tentative signs that home loan affordability has turned a corner for aspiring first home buyers, bringing the prospect of owning their own home slightly closer.
The latest improvement comes after many years of worsening affordability for first home buyers followed by a brief period of relative stability, and may mark a turning point in the market.
Interest.co.nz tracks the mortgage payments for a home purchased at the Real Estate Institute of New Zealand's lower quartile selling price in each major urban district, and compares that to the median after-tax wages of 25-29 year old couples.
Mortgage payments are considered unaffordable if they take up more than 40% of their after-tax pay.
That latest figures show the percentage of typical first home buyers' take home home pay that would be taken up by mortgage payments on a home purchased at the national lower quartile price with a 10% deposit, has declined for the last three consecutive months, from 43.8% in March to 41.9% in June.
That means home ownership for typical first home buyers has gone from being solidly in unaffordable territory at the start of the year to just marginally unaffordable in June.
If the current trend continues, then affordability at the national level would likely dip under the 40% threshold in the fourth quarter of this year.
If that happens, it would the first time that housing has been considered affordable for first home buyers at the national level since October 2021.
The recent improvement in affordability has been caused by a fortuitous combination of several factors:
- Small falls in REINZ's lower quartile selling price which has declined for three consecutive months, from $600,000 in March to $579,000 in June.
- Small falls in mortgage interest rates, with the average of the two year fixed rates charged by the major banks declining for seven months, from 7.04% in November last year to 6.72% in June this year.
- The drop in interest rates combined with falling prices has seen the mortgage payments on a lower quartile-priced home purchased with a 10% deposit, steadily decline from $935 a week in November last year to $875 a week in June this year, providing a saving of $60 a week in mortgage payments. If the same property was purchased with a 20% deposit, the mortgage payments would have declined from $740 to $690 over the same period, giving a saving of $50 a week.
- Ongoing increases in wages, although these have slowed considerably this year after substantial growth last year. Interest.co.nz estimates the after-tax pay for couples aged 25-29 and both working full time, has increased from $2078 a week in January this year to $2090 in June, giving them an extra $12 a week.
However the latest improvements in affordability should be regarded as a small step in the right direction rather than a great leap forward in home ownership measures.
Housing is still severely unaffordable for prospective first home buyers on average incomes in Auckland and is also particularly difficult for them in Bay of Plenty, Hawke's Bay and Wellington.
It would take a sustained decline in mortgage interest rates and house prices at the bottom of the market and an ongoing rise in wages to make home ownership an affordable option for typical first home buyers in those regions.
The tables below give the main affordability measures in all of the main urban areas throughout the country.
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
24 Comments
Good news. The question is... why did we allow affordability to get this bad in the first place, and what are we going to do moving forward to ensure it consistently improves for FHB? Putting a lid on crazy rent inflation is a good start. The self serving nature of our landlording culture push costs downwards... there has to be a better way?
Affordability became a problem, again, when we allowed property prices to escape in 2012; when we had them by the throat. One more push back then and Affordability was within reach. But no. We wanted higher property prices to make ourselves Rich. Now we have the worst of both Worlds. A Higher gross Debt to service and our citizens mortgaged past their eyeballs. Lower interest rates isn't the answer - they are the problem.
Unfortunately for a time it was the only investment path 'a generation' of people in NZ were rewarded with, hence they voted in mass for the government party that massaged that investment path the most, even to the detriment of the economy as a whole.
However, I believe that path is now well-trodden and that generation will be now cashing in their property chips, in mass.
And let's not forget these hollow, politically-motivated words:
"Not only have house prices increased, but the cost of serving a mortgage has also skyrocketed in recent years.... Each week 760 people leave New Zealand to live in Australia....thousands of young New Zealanders have resigned themselves to never owning their own home.... Median house prices are now essentially double what they were six years ago.....if we are serious about protecting the Kiwi Dream of homeownership, then we need to get a better balance between those concerns and their eventual impact on home affordability. To not do so is to ignore a fundamental long-term driver of the housing affordability crisis..... The crisis has reached dangerous levels in recent years and looks set to get worse."
The Right Honourable, Sir John Key - 2007
https://www.scoop.co.nz/stories/PA0708/S00336/key-speech-to-new-zealand…
Remember when the mortgage payments are considered unaffordable if they took up more than 35% of their after-tax pay and is lower still in countries with more truly affordable housing,
But someone somewhere thought that they would redefine the term to miraculously make housing more affordable.
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