Housing affordability is worsening for first home buyers but staying the same for renters, according to the latest Housing Affordability Measure (HAM) released by the Ministry of Business Innovation & Employment (MBIE).
It shows that across the country, an estimated 80% of potential first home buyers would have below average incomes left to live on after paying housing costs including mortgage payments, rates and insurance. That's up from 77% a year earlier.
However the percentage of renters who would have below average incomes after paying their rent was unchanged at 61%.
According to MBIE, the HAM "shows a trend, which supports central and local government to respond to affordability challenges that are specific to each housing market."
Unfortunately the measure is already out of date.
It is based on data up until March 2017, and does not take into account any changes in rent, household incomes, mortgage interest rates or house prices that have occurred since then.
So some people might say that this piece of HAM from MBIE is past its use by date. (Here's interest.co.nz's most recent Home Loan Affordability Report).
However what it does show is that home ownership was becoming increasingly unaffordable for first home buyers in all three main centres during the final years of the last National Government.
In Auckland, the share of potential first home buyers who would have below average incomes left after paying housing costs increased from 83% in March 2016 to 84 % in March 2017.
In Wellington City it increased from 58% in March 2016 to to 63% in March 2017, and in Christchurch it increased from 72% to 74% over the same period.
However renters fared slightly better, particularly in Auckland where the estimated share of renting households who would have below average incomes after paying their rent declined from 55% in March 2016 to 54% in March 2017.
In Wellington City the share of renters with below average incomes after rent payments were deducted was unchanged on 44%. In Christchurch it increased from 54% to 56%.
35 Comments
A more surreal and current snap shot of house price to income published by IMF update May 1st, 2018. And yet another convincing publication of housing market turmoil on the horizon.
That was a rhetorical question?
During the bust in Ireland I think that it was aptly described as 'a proper bugger's muddle' - What you won't want to be in the next few years is 'over-geared'
It's dark but I may carry on with Veggie patch and bomb shelter tonight while the soil is wet and easy to move!
Well it looks like Winter has struck the Capital with a 1.3% fall in prices in May.
https://www.oneroof.co.nz/news/the-good-news-hidden-by-drop-in-wellingt…
The Link was provided on another article by an unusal source (Double GZ) - I guess either his account has been hacked or, he is so worried that he is going to scare people off buying everywhere else in the Country. An interesting tactic.
Winter has arrived with a quick double digit fall in price... Little Melbourne perhaps, similar collapse ahead. Debt bubble goes pop!
I have said it before, but it is worth repeating. House-price-to-income relationships are rubbish. They are stock:flow relationships and by mixing up like that, can lead to distorting the conversation and real understanding of the problem.
The problem is affordability. The essential affordability relationship is between take-home pay, and the cost of owning (or renting). That is a flow:flow relationship.
The first problem with House-price-to-income relationships is that incomes used are almost always before-tax incomes. But people pay rent or mortgage payments with after-tax incomes. Income tax levels have a direct impact on affordability, so this problem ignores that completely.
Secondly, people just don't buy a house with their income. They use their income to make a regular payment (rent or mortgage payment). The HPTI measure completely ignores both the interest rate and the term of the mortgage. Big problem. Think about it; house prices could go down, improving the HPTI ratio, but affordability would get worse if interest rates rise. That is a much more serious and likely issue, identifdying the real stress.
HPTI ratios are silly, click-bait measures and only survive because they make good headlines. They deserve to be ignored.
I see three separate issues here.
From a home buyers point of view, it has to be all about affordability. The best rules here are around stress testing loans. Still flow:flow. Can the borrower handle higher interest rates. (lower house values mean nothing in this situation).
From a bank stability point of view, I think stress testing is also the fundamental metric. What is the chance borrowers can't service their obligations. Again flow:flow for existing clients. I just don't see any benefits of stock:flow tests - unless the bank is so weak, it might need toi be liquidated. And banks just aren't liquidated these days - they get reorganised under new ownership. I can't think of any situation where it would be necessary (let alone best) to call in all loans in at once.
From society's point of view (financial system stability) then perhaps there is a reason to look at overall stock:flow tests. But they will only be useful at a high, generalised level. Not sure you would use them when trying to manage a credit crisis. Anyway, prosperous system 'rules' will go out the window when there is real, existential stress. Politics rules. Pressure rises to socialise losses. That is always bad. But solutions should be based on real affordability by the customers in a loan book. Writeoffs may be necessary to get the flow:flow relations back to sustainability.
So it always comes down to stress testing affordability. Flow:flow.
I don't see stock:flow tests being important in any of the three categories.
Housing is more or less related to what banks are willing to lend. Houses could easily triple in price if banks are willing to let customers take out 100 year mortgages. It's all funny-money a lot of the time.
There are retired people buying houses while young people with their whole working life (future earnings) in front of them can't get a look in - we won't be sticking around for this rort.
Mmm not sure I would agree with that. They assess leverage and the exposure of a borrower to changes in interest rates. A net debt to cashflow ratio is normally applied to cap aggregate permissible borrowings. A debt service cover ratio assesses the ability to meet debt service over a given period but the leverage ratio assesses the exposure of a borrower to changes in economic conditions over the life of a loan. I agree affordability at a given time is an issue for a DSCR, but leverage via debt to income is important also, it’s not clickbait and it shouldn’t be ignored esp in the context of 25 year mortgage debt.
agreed Bobster, one amendment though, these days its 30 year mortgage debt that people are signing up to..
That is if they want to pay the loan back, rather than carry the interest only risk that many of the 'cash-flow quadrant' specuvestors have prescribed too... Robert Kyosaki, I think his name was wrote a very simple book for those with low IQ's, about property investing which I believe was popular in the United States up until 2008, or, before we got to understand about Credit Risk and and bank tightening - it appears that the same book may have been the primary reading material being circulated around NZPIF seminars across New Zealand over the last 10 years.
Can a normal person, with just an ordinary job for income and borrowing to buy a house to live in, get an interest only loan?
I tend to use my own experience as a measure so could be way off the mark but I pay off my interest only loans regularly in big lump sums.
Why would any such normal person want one? It’s not about “flexibility” or “affordability”, it’s purely about increasing the amount of leverage you can achieve. People take interest only not to minimise their repsyements so they have spare cash but to maximise their borrowings with their available cash. You make zero repayments, build zero equity and take full refinancing risk at the end of your interest free period. It’s purely for speculators and mugs. Interest only lending to owner occupiers is a surefire sign of a credit bubble and those borrowers risk becoming bubble fodder. An interest only loan to an occupier is a pretty sure sign that occupier can’t actually afford the house they are buying.
Yes. Westpac Australia has 50% of it's asset ledger invested in interest only consumer housing loans for the very average person. It is the reason why they have been labelled as the "outlier bank" of the big 4 because they have positioned themselves to either take a bigger market share of home lending, or go bust trying. I think it will be the latter.
Zachary Smith, the banks are now re-pricing their asset books and are looking at their outstanding "interest only" loans. You may find out soon that you will be required to start making principle and interest repayments to remain on target within your original term loan of 25-30 years. It will most likely mean that once your interest only term expires, that your repayments increase between 30-50% of your current repayment amounts, as is now happening to our Australian cousins. If your interest only term was setup for the first 5 years of a 30 year term, then your repayments will be changed so that you still repay the original loan within this 30 year period, which means at the start of your 6th year in, you will need to make up for all of those principle repayments that were put on hold. A lot of investors and homeowners have already been caught out and can't meet the repayments. It can be a dreadful situation for many.
https://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&ob…
https://www.ft.com/content/4e0377e6-6ad4-11e7-bfeb-33fe0c5b7eaa
Gary, a self-employed fitness instructor, is one borrower worried about his interest-only mortgage. He’ll soon have to hand over a lump sum of £129,000 to his bank, but it is money he doesn’t have.
“We didn’t have things explained to us,” says Gary, who lives with his wife and daughters in Luton. “Anyway, our hands were kind of tied at the time — it was more or less our only option.”
Linda needs to have a difficult conversation with her son. The expectation was that one day, he would inherit the family home in London where she still lives. But her decision to take out an interest-only mortgage of £182,000 nearly a decade ago has effectively cost him his inheritance.
Few questions were asked when the 66-year-old part-time school teacher took out the loan following a family crisis, and the 10-year term is close to running out. Since then, she has paid more than £70,000 in interest — but not repaid a penny of the underlying debt.
43 Orakei Rd DGZ sold under the hammer at 5:00pm today yes! 2017 CV $2,950,000 ^^LOLdgz^^ https://rwremuera.co.nz/auckland/remuera/43-orakei-road-18551948/
"There's a dark void beneath me. I hang above it, suspended by a piece of string. I cannot fall because everyone assures me the string can't break and is getting less likely to break with each passing moment. They know this because they too are suspended from the same piece of string."
The useless bit of out of date information from MBIE just sums that department up 100%. This is the department that was and still is in the middle of the Meth fiasco as the official office of the Tenancy Tribunal. They are the source of staff for PT's new department. This is the department that made submissions on the letting fees and said they did not know how many properties are managed.
They are really just an embarrassment and hindrance to the housing industry.
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