Affordability is starting to improve significantly for aspiring first home buyers thanks to a combination of falling house prices and declining mortgage interest rates.
The Real Estate Institute of NZ's national lower quartile house price has declined slowly but steadily for the last four consecutive months, from $600,000 in March to to $570,000 in July and is now down by $100,000 from its November 2021 peak.
In Auckland, the country's most expensive and least affordable region for first home buyers, the lower quartile price has declined by $55,000 over the last four months, dropping from $815,000 in March to $760,000 in July.
Auckland's lower quartile price has now declined by $206,000 from its November 2021 peak of $966,000.
The lower quartile price is the price point at which 25% of sales are below and 75% are above, representing the lower priced end of the market, which is usually of most interest to first home buyers.
However first home buyers are currently receiving a double benefit, with mortgage interest rates also on the slide.
The average of the two year fixed rates offered by the main banks peaked in its current cycle in at 7.04% in November last year, and has since fallen steadily to 6.50% in July.
That combination of lower prices and lower mortgage interest rates brings several benefits to first home buyers:
- The amount they need to save for a deposit is reduced.
- The don't need to borrow as much.
- Their mortgage payments are reduced.
All of that means their chances of getting into a home of their own are considerably improved.
For someone looking to buy a home at July's national lower quartile price of $570,000, the amount they would need for a 10% deposit would have declined from $60,000 in March to $57,000 in July, a saving of $3000.
Compared to the price peak of November 2021, the amount needed for a 10% deposit would have declined by $10,000.
Of course you could double those figures for a 20% deposit.
The amount first home buyers will need to borrow is also less.
To buy a home at July's national lower quartile price with a 10% deposit would require a mortgage of $513,000, down from $540,000 in March and $603,000 at the November 2021 price peak.
But probably the most noticeable impact all of this is having is on mortgage payments.
For someone buying a home at July's lower quartile price with a 10% deposit and a mortgage at the average two year fixed rate of 6.5% and a 30 year term, the payments would be about $844 a week compared to $911 a week back in March, representing a saving of $67 a week.
If they purchased the same home with a 20% deposit the equivalent savings on the mortgage payments would be $54 a week.
So at the moment, the market is moving in first home buyers' favour.
The tables below display the main measures of affordability in all of the main urban districts around the country, for typical first home buyers with either a 10% or 20% deposit.
48 Comments
Why can't things in society get better without there being a converse & adverse impact elsewhere in something completely unrelated?
I.e. yay we have flat screen TV's and Uber Eats, but as a trade off house prices must be 10 - 15x the average annual salary.
What part of the various societal improvements suggests house prices must be where they are? As televisions became cheaper to make, mortgage rates had to fall???
It's the nature of economics. As the great Thomas Sowell says, "There are no solutions, there are only trade-offs".
The "societal improvements" you mention above are technology related. Technology is intrinsically deflationary, and there's nothing an economist hates more than deflation - so interest rates go down to keep the average inflation at an acceptable level. Hey presto, real assets inflate in dollar terms.
Just one example, but that's essentially what we've been doing for the best part of three decades.
Is technology actually deflationary? How much did people spend on computers and cell phones in the 1980's vs today?
Their price point might deflate, but from a consumer perspective if someone who has not owned a TV or gaming computer decides to buy one (because the price has "deflated" to where it makes sense for them to buy), is that not an added lifestyle expense therefore inflationary?
The "societal improvements" you mention above are technology related. Technology is intrinsically deflationary, and there's nothing an economist hates more than deflation - so interest rates go down to keep the average inflation at an acceptable level. Hey presto, real assets inflate in dollar terms.
You understand well young Jedi.
Consistent with Jeff Booth’s “The Price of Tomorrow: Why Deflation is the Key to an Abundant Future”
Exactly. Also to add to that, there have been lots of improvements in other ways that get capitalized into land prices. Better infrastructure, more amenities (many neighbourhood shops offer far better choices than the 1-2 dingy chinese takeaway/fish&chip joints of yesteryear), lower crime rates all get capitalised into property prices.
The technology you're referring to also gets capitalised into land prices. Ubereats doesn't help you if you live in the woops. But it does increase the value from being located in Ponsonby...
The technology you're referring to also gets capitalised into land prices.
Nonsense. Land prices are a function of money supply and credit creation. In fact, the the credit creation mechanism is the whole basis of the Ponzi.
Nothing to do with the deflationary benefits of technology.
The ultimate trade off, we’ve traded cheap basics for cheap luxuries. The real question is how much cheaper can any of these luxuries really get? In real terms a brand new TV is about a tenth (a bit less than a tenth but being rough) the cost of one in the 80s, and that has freed up a lot of additional spending capacity for debt. If tvs are a tenth as cheap in 40 years time, will that have the same impact on our economy? Ie if GDP was an 8th the size it is today, what spare capacity would we have for the current size of private debt?
But also!
Flares
Disco
Pink Floyd
Hydro schemes
Motorways (surely they were cool when they were novel and new?)
CNG cars to go on the motorway (so long as it wasn't a carless day)
An active space race
The USSR showing you an alternate reality in which tiles are only grey and the state chooses that for you
Just because I wasn't born yet doesn't mean I can't be nostalgic about it all. In the 70s my mother bought a house in Brooklyn for $20k and paid the mortgage from her part time job while she was at uni if that helps?
Thirty years ago I was flatting and life was pretty good. It was easy to find a place to rent and it didn't take too much of my average wages. Tertiary education was free and 25-29 year old couples could afford to buy a house without needing flatmates and they could more easily afford to start a family. Buying a house earlier also means it's paid off quicker and people can save for retirement sooner. Gangsta's Paradise was just a catchy song, now it's a book about the rise of gangs, drugs and other social problems in NZ. Saying that though, any day is a good day to be alive.
Gestational Diabetes (GDM) is certainly a risk for any young couple planning a family and trying to purchase their first house......
30 years ago you could still smoke in pubs. You could have fun on the terraces at Eden park without getting locked up, taking risks was a personal problem, I had hair, fixing things yourself was the norm, bought 3brm house in onehunga for 123k, household income was 45k. Wife stopped working when we had kids. Not being nostalgic, well maybe a little bit, but life was a lot freer then.
What happens when the prices of all things are going up? Interest rates rise to temper price rises.
So what does interest rates doing the opposite, falling, reflect? Prices.... are falling. (See Market Interest comment above)
The lower rates go, the more the expectation is of Prices Falling. (NB: And the Riskier new lending is. We've just had a trial run over the last 2 years of what happens when lenders lend low. When % rates subsequently rise, those who are freshly indebted struggle with the higher repayments. And yet, here we are. Doing it all over gain)
It's the only game there is...think of a bouncing ball on a table - up and down, each time the rise is slightly less, eventually the ball will just roll, roll off the edge of the table (into negative rates) and bounce once again on the floor, but...again, eventually the ball just rolls, rolls on the floor and eventually stops. Game over.
I think you have your cause and effect a bit mixed up. The RB raises interest rates to (in theory) stop price rises. When things stop rising excessively they can lower rates.
Perhaps you better go tell stuff that tasty cheese hasn't hit $20/kg after all, since according to you prices are falling.
Politicians, bankers economist etc underestimate the potential to reverse the brain drain and have a happier more socially functioning society by gutting house prices.
I believe unaffordable housing and the financial stress flowing from it is doing more damage to NZ than any other factor.
And we spend billions on the symptoms... being crime, subsidies, hospitals, mental health, racial disharmony and so on.
Will they ever wake up?
The funny thing is that karma is coming for the boomers.
Why would a smart kid, just graduated... stay in nz vs Au/uk/USA vs where they have better opportunities, higher salaries, more to do, cheaper houses and better to raise a family etc. And those kids are in great demand.
So our boomers price the kids out by keeping house prices high. and then complain the public services and infrastructure is crap and their rates as pensioners are too high.. and soon they will have to be taxed on their wealth and super calculated based on wealth as all the taxpayers are gone and noone is left to run the place or pay taxes as needed to fund their super. Added to which will be the crime where the dump kids that remain are robbing them blind. Healthcare is getting awful and public transport sucks.
Karma. We and our kids are off as soon as their education is done. What's to stay for here? It's like a real sad country now with not much to be proud of
The older investors in nz don't get the need for balance. Money vs lifestyle etc.
Thanks for your concern, things aren't really too tight at my end. Some of us don't mind the ads and find other things to spend the $10 each month on. It's a personal preference and priorities thing you know? But certainly not "bad karma" inducing either like throw away lines such as "what storm?".
I have been saying this for a long time but often get labeled as "just being negative". Unfortunately there are some who couldn't care less how bad things get, as long as they are making money.
I've said it before and I will repeat, narcissism is the new pandemic and we don't have a vaccine yet!
by HouseMouse | 27th Aug 24, 1:00pm
I will return to doing so (contributing) , Yvil.
Good on you HM.
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