Home loan affordability worst since December 2010 as house prices surge

Property

19th Dec 12, 11:26am by Bernard Hickey

By Bernard Hickey

Home loan affordability deteriorated to the worst since late 2010 in November as house prices surged to record highs and average interest rates edged only marginally lower, the Roost Home Loan Affordability reports show.

A sharp increase in Spring house buying activity and shortages of supply in Auckland lifted the median house price to a record high NZ$383,250 in November, up 4.3% from a year ago.

Auckland’s median house price jumped to a record high NZ$540,000, up 10.2% from a year ago.

Advertised floating mortgage rates have been unchanged since March last year, but average 6 month and 1 year mortgage rates edged 9 basis points and 3 basis points lower respectively over the month.

This helped reduce interest costs for fixed rate borrowers, but not enough to improve overall affordability once the impact of higher house prices and marginal income growth is accounted for.

Competition between banks to poach market share and boost lending heated up in September and October. ANZ’s decision to drop the National Bank brand has sparked a new round of fixed mortgage rate cuts and market activity.

The Roost Home Loan Affordability monthly reports show affordability for young working couples has deteriorated in the last month.

Affordability for home buyers in central Auckland, central Wellington and Christchurch remains difficult.

“Spring has definitely sprung in the housing market and both banks and mortgage brokers are busier than they have been in years,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from interest.co.nz.

Some banks have cut fixed mortgage rates to under 5% and are offering discounted legal fees, lower interest rates for borrowers with high equity and, in some cases, the discounting of break fees. Pricing is often differentiated, depending on the safety of the borrower and the size of the loan.

The Official Cash Rate (OCR) is expected by economists to be steady at 2.5% through until late 2013, before rising to a peak of around 4% over the next couple of years.

Affordability worsened in November as the median house price for all of New Zealand rose to NZ$383,250 from NZ$380,000 in October. This increased the proportion of single after tax income needed to service an 80% mortgage on a median house to 55.3% from 54.9% the previous month, the Roost Home Loan Affordability report shows.

This is the worst level since December 2010.

Household affordability for first home buyers deteriorated to 22.8% of income from 22% the previous month because the median lower quartile house price rose to a record high NZ$270,000 from NZ$262,000.

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 deteriorated for Auckland to its worst level since August 2010. See below or 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 had generally been improving since December 2009 as interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again. Just under 56% 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 worsened in November because of the higher 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 rose to 36.4% from 36.1% the previous month. 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.

Regional home loan affordability comparison:
mortgage payment as a % of weekly take-home pay
	Nov-12	Oct-12	Nov-11	Nov-10	Nov-09	Nov-08
New Zealand	55.3%	54.9%	54.3%	57.2%	63.8%	64.2%
Northland	46.3%	41.8%	49.4%	54.5%	68.1%	67.0%
- Whangarei	38.5%	38.5%	41.8%	47.4%	60.5%	58.0%
Auckland	74.1%	72.8%	68.9%	71.8%	80.0%	76.1%
- Central	85.1%	80.3%	78.4%	80.4%	86.7%	77.8%
- North Shore	79.5%	77.4%	73.6%	76.2%	87.3%	83.5%
- South	70.6%	68.2%	68.9%	72.3%	80.8%	75.2%
- West	62.8%	62.3%	59.0%	61.1%	67.2%	67.1%
Waikato/BOP	48.8%	47.7%	48.7%	54.3%	61.6%	60.9%
- Hamilton	51.2%	51.9%	51.6%	55.3%	63.5%	64.3%
- Tauranga	54.3%	52.8%	60.1%	57.9%	70.9%	67.2%
- Rotorua	33.4%	37.0%	36.8%	45.4%	44.5%	44.6%
Hawkes Bay	44.1%	41.5%	47.7%	48.5%	55.9%	61.9%
- Napier	46.1%	49.6%	47.7%	51.8%	57.5%	61.8%
- Hastings	46.0%	35.4%	47.1%	49.6%	57.8%	60.9%
- Gisborne	45.0%	41.8%	44.8%	52.1%	57.5%	56.2%
Manawatu/Wanganui	35.1%	34.8%	36.3%	39.8%	45.0%	47.2%
- Palmerston North	40.4%	41.2%	40.1%	44.2%	49.5%	49.0%
- Wanganui	27.9%	30.9%	33.6%	35.3%	39.2%	41.8%
Taranaki	40.9%	39.8%	43.0%	45.3%	54.2%	53.5%
- New Plymouth	48.3%	50.6%	47.4%	50.5%	67.3%	64.6%
Wellington region	54.1%	53.9%	52.4%	58.8%	65.0%	64.9%
- City	60.3%	59.8%	59.2%	66.7%	77.2%	68.0%
- Hutt Valley	47.9%	49.9%	46.7%	53.2%	57.9%	57.2%
- Porirua	53.2%	50.7%	59.1%	61.3%	67.6%	71.6%
- Kapiti Coast	52.2%	49.1%	51.6%	57.8%	60.5%	62.3%
Nelson/Marlborough	51.0%	53.4%	53.3%	57.8%	64.7%	70.6%
- Nelson	52.6%	55.8%	53.5%	59.6%	63.5%	68.7%
Canterbury/Westland	51.1%	50.9%	50.8%	50.8%	57.7%	58.9%
- Christchurch	55.9%	55.4%	57.9%	55.4%	65.8%	64.4%
- Timaru	38.9%	37.0%	37.7%	38.0%	45.3%	42.8%
Central Otago Lakes	67.0%	64.2%	65.8%	73.2%	86.5%	97.3%
- Queenstown	75.2%	81.7%	72.7%	83.5%	109.9%	101.9%
Otago	40.7%	37.9%	39.8%	40.0%	47.1%	45.7%
- Dunedin	46.6%	42.7%	44.5%	44.1%	54.1%	50.9%
Southland	30.4%	31.4%	31.1%	32.2%	35.0%	34.0%
- Invercargill	36.1%	32.6%	33.1%	35.0%	39.4%	37.8%

No chart with that title exists.

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12 Comments

by waymad | 19th Dec 12, 1:44pm 1355877870

Doctor Housing Bubble has a nice sidelight on household formation (and the deferral thereof) in the US, and the movements of education costs (a big factor in said deferral).

As we here in Godzone have two bubbles - housing plus higher ed, but little of the foreclosure and underwaterness (yet...) we aren't quite comparable.

But DHB's use of the tuition cost vs housing value juxtaposition is praps something a cashed-up neo-Wellingtonian could conceivably replicate?

by Gareth Vaughan | 21st Dec 12, 4:06pm 1356059177

Don't know if you saw it but I did an interview with the president of REMAX recently who spoke about the housing formation issue, among other things - http://www.interest.co.nz/property/62386/visiting-remax-president-vinni…

by kiwimm | 19th Dec 12, 1:58pm 1355878728

I would be more interested in how much disposable income is left for each area after paying the mortgage. I can see this by looking into each report by would be good to have a table up in a post. To me, this is a much better indicator of housing stress and affordability.

For example, compared to Auckland, weekly disposable income is over twice as much in Hamilton amd nearly 4 times as much in Rotorua:

- Auckland Central = $131.20

- Hamilton = $369.17

- Rotorua = $501.60

by Wolly | 19th Dec 12, 3:06pm 1355882807

Probably a better indicator of real inflation (debasement of the dollar) than the official cook up.

by MortgageBelt | 19th Dec 12, 3:44pm 1355885098

Is it really believable for the OCR to be 4% in 2 years? I just can't see it happening. Floating home loans at 7.5%? - now then house prices might start declining rapidly. Would the banks really want house price declines and declining lending volumes? They're not even meeting their targets atm at 4.95% rates!

Unlikely.

More likely OCR 2.5% will continue for the forseeable future. Until the next couple of world negative events, then maybe a drop or 2.

by MCNZ | 19th Dec 12, 3:59pm 1355885998

With the slightest upward movement to mortgage rates Housing Affordability in NZ will be extinct.

Already builders are in high demand as so much of the actual building sectors capabilities have migrated.

Builders will favour long term large jobs with more stability than building Affordable Entry Level Housing.

If high level LVR are introduced then the migration of kiwis to Australia will be phenominal.A young mobile population of New Zealanders who have aspirations to OWN a home of their own will be Australias gain. Already with First Home Owners Grants, Qld builders boost.

I dont beleive for a second New Zealanders are heading home to NZ, most state quite clearly they left because they couldnt afford a home in NZ and they keep getting more expensive, nothings changed.

The Largest building projects in the next ten years are going to be Social Rental Housing for the masses , who just couldnt buy their own homes in NZ.

by glennb | 20th Dec 12, 11:02am 1355954565

I don't really believe that young people move to Australia only because they can't afford a house in NZ.

According to Roost, all these would-be-migrants need to do is move out of Auckland to afford a home.

by notch | 22nd Dec 12, 11:25pm 1356171945

Believe it. My wife and I are one of them. Except we moved further afield than Aussie.

We can't get jobs in our chosen fields outside Auckland, so for us staying in NZ = Auckland.

But in Auckland, we also can't earn enough to cover a mortgage for a property which is within an hour's comute from our jobs.

Auckland, is only a great place to live if you are filthy rich or own property. Wages are so low that owning property whilst living there is a pipe dream. There are FAR better places to get ahead in the world.

by speckles | 23rd Dec 12, 3:59am 1356188380

You must be very specalised if you could only find work in Auckland rather than Wellington/Christchurch. What is your line of work? In essence, job opportunity and house affordability are the two key reasons people leave Auckland...are these factors built into Auckland citys growth projections...me suspects not.

by glennb | 20th Dec 12, 9:07am 1355947655

this is a regional issue, not a national one.

The statement "Home loan affordability worst since December 2010 as house prices surge", when you look at the regional breakdowns, is only applicable to Auckalnd. Roost and all other realestate market commentators need to change their reporting emphasis from being a national issue, to it being an Auckland issue.

I know Auckland is the largest population centre in NZ, and it's realestate issues are significant and as a Wellingtonian I want ot hear about them but these articles need to move their focus and start reporting the issues more honestly - foregoing the more dramatic but misleading headlines.

by kiwimm | 20th Dec 12, 9:30am 1355949010

You are quite right - it is an Auckland and Queenstown issue. Everywhere else seems to have reasonable disposable income. List below ranked from highest to lowest.

City                          Disposable Income
Rotorua                 501.60
Wanganui             500.45
Whangarei            483.55
Palmerston North 476.28
Invercargill             456.12
Timaru                   433.86
Hutt Valley             404.66
Wellington City      395.73
Napier                     391.01
Hastings                390.21
Porirua                    385.40
New Plymouth       383.97
Kapiti Coast          370.68
Hamilton                 369.17
Dunedin                 364.67
New Zealand         359.41
Gisborne              358.55
Nelson                   350.17
Christchurch         343.74
Tauranga             334.17
Auckland West   307.08
Auckland South   228.02
North Shore         185.49
Queenstown       182.30
Auckland Central 131.20

by JasonS | 27th Dec 12, 8:43pm 1356594226

I am not an economical expert but it was always difficult for me to understand when it times of financial insecurity our government would male prices high. I simply see no logic. People have no money already, so what is the point of making a price of a property even less affordable? Do they really expect somebody to buy homes now? Banks compete with each other forgetting about average people’s needs. Thanx a lot for the provided news, but I doubt that everything is just that bad....but who knows of course.

Home loan affordability worst since December 2010 as house prices surge

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