By Bernard Hickey
Home loan affordability improved in July as the national median house price edged back from record highs and interest rates remained around record lows.
Competition between banks to boost lending and housing supply shortages in central Auckland and Christchurch have combined to lift housing market and mortgage approval activity, particularly in those two cities.
The Roost Home Loan Affordability monthly reports show affordability for young working couples remains near its best levels in almost eight years, although affordability for home buyers in central Auckland, Wellington and Christchurch remains difficult.
Banks are offering a variety of discounted fixed mortgage deals that include discounted legal fees, lower interest rates for borrowers with high equity and, in some cases, the discounting of break fees.
“Mortgage borrowers wanting advice on how to improve their loan affordability are best to work with a broker,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from Interest.co.nz.
“Banks are competing hard for new customers as loan growth is much weaker than in previous housing upturns, but their offers aren’t as one-size-fits all as in previous years,” Dennehy said.
Financial markets are now expecting the Official Cash Rate to be flat at 2.5% over the next year. Economists see the OCR rising from mid 2013 to a peak of 4% over the next couple of years.
Affordability improved slightly nationally in July as the median house price for all of New Zealand fell to NZ$361,000 from NZ$372,000 the previous month. This reduced the proportion of single after tax income needed to service an 80% mortgage on a median house to 52.3% in July from 54% in June, the Roost Home Loan Affordability report shows.
Household affordability for first home buyers improved to 21.4% of income from 21.6% the previous month and remains around its best levels since late 2004.
First home buyer household affordability is measured by calculating the proportion of after tax pay needed by two young median income earners to service an 80% home loan on a first quartile priced house.
Affordability improved for most of Auckland, Wellington, Central Otago Lakes and Southland because of a fall in median house prices, while affordability was flat to poorer in most other regions due to higher median prices. See the main report for links to regional reports.
The Roost Home Loan Affordability report measures affordability nationally and regionally for individual income earners and households, taking into account median house prices, interest rates and incomes in their regions and cities.
Affordability has generally been improving since December 2009 as house prices have flattened out and interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again.
More than 60% of home owners are now on floating mortgages, although there has been a surge in fixed rate borrowing in recent months as banks pared their rates. Advertised floating rates at around 5.75% are higher than 1 year fixed rates at around 5%, but many banks are offering ‘unofficial’ floating rates of around 5.3% to solid customers with high levels of equity that threaten to leave their bank. The Home Loan Affordability reports use the advertised floating rate.
Affordability for households with more than one income improved slightly in July because of the lower median house price. 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 34.4% from 35.5% 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 first home buyer household 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 and coinciding with strong demand.
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Refer to our Median Multiple reports for a reconciliation of this report to the internationally comparable benchmarks, by city.
Details of our household profiles, the data sources, and the methods used, are set out in the Notes section of this report, below.
| Regional home loan affordability comparison: | ||||||
| mortgage payment as a % of weekly take-home pay | ||||||
|
Jul-12
|
Jun-12
|
Jul-11
|
Jul-10
|
Jul-09
|
Jul-08
|
|
| New Zealand |
52.3%
|
54.0%
|
51.2%
|
61.8%
|
56.3%
|
76.6%
|
| Northland |
46.6%
|
48.7%
|
44.2%
|
60.3%
|
58.0%
|
77.7%
|
| - Whangarei |
41.0%
|
41.9%
|
40.6%
|
51.1%
|
49.6%
|
68.1%
|
| Auckland |
68.7%
|
68.8%
|
65.5%
|
75.4%
|
68.9%
|
89.0%
|
| - Central |
74.4%
|
76.2%
|
68.8%
|
81.8%
|
71.8%
|
88.2%
|
| - North Shore |
75.3%
|
74.5%
|
72.5%
|
80.0%
|
76.0%
|
93.1%
|
| - South |
67.1%
|
69.4%
|
66.0%
|
76.6%
|
70.3%
|
89.7%
|
| - West |
59.7%
|
58.2%
|
57.3%
|
70.1%
|
60.5%
|
74.9%
|
| Waikato/BOP |
46.8%
|
49.1%
|
48.4%
|
59.6%
|
56.8%
|
77.6%
|
| - Hamilton |
52.2%
|
54.0%
|
53.7%
|
63.6%
|
60.3%
|
78.0%
|
| - Tauranga |
57.3%
|
54.7%
|
54.8%
|
66.6%
|
62.6%
|
84.2%
|
| - Rotorua |
42.6%
|
41.3%
|
40.7%
|
50.0%
|
44.1%
|
63.4%
|
| Hawkes Bay |
43.7%
|
43.0%
|
45.9%
|
53.3%
|
50.8%
|
71.1%
|
| - Napier |
46.0%
|
43.6%
|
47.1%
|
57.4%
|
51.6%
|
76.7%
|
| - Hastings |
42.2%
|
43.3%
|
44.8%
|
57.3%
|
53.8%
|
66.6%
|
| - Gisborne |
34.0%
|
34.0%
|
38.7%
|
57.0%
|
51.6%
|
57.2%
|
| Manawatu/Wanganui |
34.7%
|
34.9%
|
34.1%
|
44.3%
|
40.5%
|
57.4%
|
| - Palmerston North |
40.0%
|
36.4%
|
41.9%
|
45.6%
|
46.9%
|
61.1%
|
| - Wanganui |
27.1%
|
26.0%
|
26.1%
|
39.5%
|
32.2%
|
48.8%
|
| Taranaki |
40.2%
|
43.8%
|
41.3%
|
55.8%
|
50.6%
|
65.0%
|
| - New Plymouth |
47.2%
|
48.0%
|
47.6%
|
63.0%
|
57.0%
|
69.3%
|
| Wellington region |
48.8%
|
52.8%
|
50.0%
|
63.1%
|
56.6%
|
77.4%
|
| - City |
56.2%
|
56.9%
|
59.4%
|
68.8%
|
65.3%
|
82.7%
|
| - Hutt Valley |
45.3%
|
45.4%
|
45.4%
|
55.2%
|
51.4%
|
68.0%
|
| - Porirua |
52.6%
|
52.6%
|
46.2%
|
66.7%
|
59.6%
|
71.5%
|
| - Kapiti Coast |
48.4%
|
46.3%
|
51.6%
|
60.4%
|
54.1%
|
68.6%
|
| Nelson/Marlborough |
47.5%
|
54.4%
|
50.6%
|
63.8%
|
60.2%
|
81.7%
|
| - Nelson |
55.3%
|
55.4%
|
51.9%
|
60.9%
|
64.3%
|
74.9%
|
| Canterbury/Westland |
50.2%
|
48.8%
|
48.5%
|
57.0%
|
50.9%
|
70.0%
|
| - Christchurch |
55.7%
|
56.4%
|
57.2%
|
63.1%
|
55.2%
|
75.0%
|
| - Timaru |
44.6%
|
38.1%
|
38.3%
|
38.6%
|
50.4%
|
57.3%
|
| Central Otago Lakes |
66.6%
|
73.8%
|
67.0%
|
75.4%
|
74.1%
|
137.6%
|
| - Queenstown |
89.4%
|
79.4%
|
80.4%
|
84.3%
|
95.5%
|
139.1%
|
| Otago |
39.0%
|
36.8%
|
37.3%
|
47.4%
|
40.2%
|
58.4%
|
| - Dunedin |
43.4%
|
42.6%
|
43.0%
|
53.8%
|
44.5%
|
63.5%
|
| Southland |
28.5%
|
29.0%
|
29.4%
|
39.8%
|
33.8%
|
42.4%
|
| - Invercargill |
30.8%
|
30.3%
|
31.8%
|
42.0%
|
38.5%
|
46.3%
|
Full regional reports are available below:
- New Zealand (159kb .pdf)
- Northland (159kb .pdf)
- Whangarei (159kb .pdf)
- Auckland region (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)
- Hamilton (159kb .pdf)
- Tauranga (159kb .pdf)
- Rotorua (159kb .pdf)
- Hawkes Bay and Gisborne (159kb .pdf)
- Napier (159kb .pdf)
- Hastings (159kb .pdf)
- Gisborne (159kb .pdf)
- Taranaki (159kb .pdf)
- New Plymouth (159kb .pdf)
- Manawatu and Wanganui(159kb .pdf)
- Palmerston North(159kb .pdf)
- Wanganui(159kb .pdf)
- Wellington region (159kb .pdf)
- Wellington City (159kb .pdf)
- Wellington Hutt Valley(159kb .pdf)
- Porirua (159kb .pdf)
- Kapiti Coast (159kb .pdf)
- Nelson and Marlborough (159kb .pdf)
- Nelson (159kb .pdf)
- Canterbury (156kb .pdf)
- Christchurch (156kb .pdf)
- Timaru (156kb .pdf)
- Central Otago Lakes (159kb .pdf)
- Queenstown (159kb .pdf)
- Otago (159kb .pdf)
- Dunedin (159kb .pdf)
- Southland (159kb .pdf)
- Invercargill (159kb .pdf)
(r) = Revised, following Statistics NZ LEEDS database update.
5 Comments
what? silence? where are all the PI's proclaiming "nonsense?"
Anyone "invested" in property, is invested in mining, whether they like it, or not. Australia's banks are our banks, and Aussies depend on the mining boom continuing, or else it ends badly (it's coming).
Well, have a look at iron ore prices. How long do you think China can build empty buildings, and pay high iron prices to do it?
Higher prices means less consumption. Just ask anyone buying groceries or petrol these days, or "finished goods." Walked into Harvey Norman's this week. i swear there were more salespeople than customers.
I wouldn't call a house a "finished" good, either. The average construction quality in this country is deplorable. Open, mouldy, cracker boxes, as compared to average construction in other countries. With high land prices, soon to be liquidated to pay for groceries.
City councils will have to to drop their consent fees drastically, if they hope to inspire another building boom. They have to choose "fees now (with little construction, means zero), or rates on finsihed houses, later."
Rising rates is a trend, negatively affecting cash flow on property. Banks can accomodate, by lowering interest rates, but in spite of lowering interest by almost half, and still seeing prices stagnate, gives anyone with a mind a sense of the gravity of the problem.
Aussie banks are going to need those record profits to offset the massive losses about to hit their books, as the mining boom fizzles, and Aussies can't get a high-enough paying job to service their debt load. Another house goes on the market "must sell, circumstances changed"
I think we will see more and more homes sold to raise cash, just for living expenses. Once everyone gets the same idea, demand outstrips supply.
Average rents go down to what people can afford, and move-in mum, if things get bad enough. Meanwhile, mum's house sells at a discount, because others get the same idea, and buyers get spooked.
Lower rents = lower cash flow = lower property price on a cash-flow basis
As you see the average Aussie struggle with his debts, then loses his job, expect more houses to hit the market, forced sales. The debt levels in the antipodes are not sustainable.
and then the big question- what will interest rates be a year from now? 2 years from now? People are so short sighted about these things- celebrating their un-fixed interest rate. For all we know, interest rates might be lower 5 years from now, as banks are forced to accomodate further, from falling property prices.
I see interest rates going further down, as the NZD gets bought by others fleeing the Euro, and (gulp), the US Dollar. You earn negative interest on a German bond. Unbelievable. Paying a country to hold your money! Never seen in this lifetime!
It seems nobody has figured out that with a 40% reduction in interest rates, prices have remained the same. What would happen to property prices if interest rates rose back to their historical levels? 40% drop? While I don't see that happening, it's not out of the realm of possibility, if funds become very scarce. Nobody can buy these days without a mortgage, and what if those are no longer available, because the bank went out of business? It would not be the first time in history it has happened.
So buy some mining stocks. It's no different than buying a house, because that is what you are doing, whether you like it, or not, when you buy a house. I look at the prices being paid for housing stock (as high as London), and ask "how can this last?"
All it takes is for one Aussie bank to bite the dust. Profits, and hopes, are running high, but Australian banks are out there, alone in their bubble, and the mining boom will soon run dry. Without mining profits, we are all headed for the dustbin. At least we grow food, right?
While I agree on the OCR going down and way down that doesnt mean mortgage rates will follow.
I agree the euro is toast, however the money will flock to Swiss and German banks...NZD is also risky and the opposite will happen with the USD, there will be a flight to safety and tahst the USD....not because it is safe but because it is or will be perceived as better than elsewhere. If the USD is finally seen as the dog it is we will be so far gone nowhere will be safe....
Which takes me back to interest rates, they could go a 1% or 2% either way depending on how investors feel....we also have the cary trade and with a OCR at 0.25% thats long gone and hence our banks funding is questionable...
40% drop is conservative IMHO, I think 60% is the minimum likely.
Mining stocks, no way....no stocks at all, cash for now.....no debt.
Yes we grow food....but that output is going to drop, thank god it isnt GE based.....
regards
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