NZ home loan affordability improves

NZ home loan affordability improves; Auckland almost worse than Queenstown

New Zealand home loan affordability improved slightly in January after a fall in median house prices more than offset a small increase in fixed mortgage rates interest.co.nz’s home loan affordability report shows.

Affordability improved most in Wellington and in the region around Queenstown as median prices slid the most there. However, Queenstown is still the most expensive housing market in New Zealand relative to incomes, but is now only slightly worse than Auckland.

Affordability is just better than its worst levels since early 2007 near the peak of the housing boom, the monthly measure calculated by interest.co.nz found.

“The sharp drop in house sales volumes and the fall in the median house price in January has helped affordability as home buyers held back because of uncertainty around tax reform,” said Interest.co.nz Editor Bernard Hickey.

“New listings are also hitting the market as some landlords look to exit the market before property tax changes are announced in the May 20 budget. That may nudge house prices lower and further improve affordability through the middle of 2010,” Hickey said.

The Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80% mortgage on a median house fell 1.5 percentage points to 62.1%.

The median house price as measured by REINZ fell in January to NZ$350,000 from a record NZ$360,000 in December and remains 7.7% above its January 2009 trough of NZ$325,000. The average 2 year fixed mortgage rate, which has been among the most popular with borrowers in recent years, rose 5 basis points to 7.25% over the month and has now risen from an average 5.92% in February last year.

Variable mortgage rates, meanwhile, were flat in the last month at an average 6.00% and are now at their lowest level in at least 7 years, meaning some borrowers may choose to go variable rather than fixed to improve their immediate affordability.

"An expected rise in interest rates in the second half of 2010 will keep the pressure on affordability unless the fall in median house prices seen in January continues through the rest of the year,” Hickey said.
Affordability hit its worst level of 83.4% in March 2008 just after house prices peaked and 2 year mortgage rates were close to 10%.

Many home buyers jumped in March, April and May of 2009 to take advantage of lower interest rates and look for bargains, which improved the number of houses sold and boosted prices. But short term mortgage interest rates flattened out in late March and longer term mortgage rates began to rise in line with rises on wholesale markets and higher local term deposit rates.

House sales volumes flattened off in the last three months of 2009 as first home buyers and rental investors stayed away, leaving most of the activity at the top end for owner-occupiers using equity stored up during the 2002-07 boom or trading down to reduce debt. Volumes slumped in January.

Affordability is now often out of reach for most home buyers on a single income. The threshold proportion of after tax income considered prudent to sustainably own a house is around 40%. Anything above that is starting to become unaffordable.

There are 26 regional reports, and these are now available online, from one of these two links ...
http://wwwinterest.co.nz/HLA/HLA-NZ-February2010.asp
http://wwwinterest.co.nz/HLA/FHB-NZ-February2010.asp

ENDS

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