Improved first home affordability last month

A drop in house prices and interest rates improved first home affordability last month although Auckland is still unaffordable for many

There was a significant improvement in housing affordability for first home buyers in many parts of the country including Auckland last month, thanks to a sharp drop in house prices combined with ongoing declines in mortgage interest rates.

According to interest.co.nz's Home Loan Affordability Report for January, the lower quartile selling price of all home sales recorded by the REINZ in January was $302,500, down from $310,000 in December.

Around the country, the lower quartile price (the price point that 25% of sales would be below and 75% above) declined in six regions; Northland, Auckland, Manawatu/Whanganui, Wellington, Central Otago/Lakes and Southland, and rose in six; Waikato/Bay of Plenty, Hawkes Bay, Taranaki, Nelson/Marlborough, Canterbury/Westland and Southland.

The biggest fall in the lower quartile price was in Central Otago/Lakes, where it dropped by $33,200, from $412,400 in December to $379,200 in January, although December's lower quartile price in the region was exceptionally high.

That was followed by Auckland where the lower quartile price dropped from $624,000 in December to $595,700 in January.

At the same time the average of the two year fixed mortgage rates offered by the major banks dropped from 4.78% to 4.57%.

That combination of lower prices and lower mortgage rates pushed down the weekly mortgage payments on a lower quartile-priced home in many parts of the country, making them more affordable.

In Auckland the mortgage payments on a home purchased at December's lower quartile price of $624,000 (at December's average two year fixed rate of 4.78%) would have been $767.29 a week.

But the mortgage payments on an Auckland home purchased at January's lower quartile price of $595,700 (at January's average two year fixed rate of 4.57%) would have been $714.38 a week, a saving of $52.91 a week.

In Central Otago/Lakes the savings were even greater, with the weekly costs of servicing a mortgage on a lower quartile priced home dropping from $488.28 in December to $435.00 in January, leaving home buyers with an extra $53.28 a week in their pocket.

Other regions where the cost of servicing a mortgage at the lower quartile selling price dropped from December to January were; Northland -$28.29 a week, Manawatu/Whanganui -$10.62, Wellington -$22.70, Nelson/Marlborough -$7.43 and Otago -$6.82.

Those regions where the cost of servicing a mortgage on a lower quartile priced home rose between December and January (because the increase in the regions' lower quartile prices more than offset the benefits of the lower interest rate) were; Waikato/Bay of Plenty up $4.03 a week, Hawkes Bay up $30.25, Taranaki up $14.15, Canterbury/Westland up $14.40 and Southland up $4.17 a week.

Housing still unaffordable for most first home buyers in Auckland

The Home Loan Affordability Report also tracks the median net take home pay of typical first home buying couples (defined as a couple aged 25-29 and both in full time employment) and measures how much of their weekly income they would need to set aside to make the mortgage payments on a lower quartile-priced home.

If the mortgage payments take up 40% or less of their take home pay it is considered affordable, while any more than 40% is considered unaffordable.

In Auckland, typical first home buying couples would have take-home pay of $1575.16 a week and would need to set aside $714.38 (45.4%) to make their mortgage payments.

Although that is down from 48.9% in December, it means that even with the latest drop in house prices and interest rates, housing is still unaffordable for most first home buyers in Auckland.

So it might be more correct to say that the latest drop in prices made housing slightly less unaffordable for first home buyers in Auckland.

However Auckland remains the only region where housing is unaffordable for first home buyers.

In Waikato/Bay of Plenty the mortgage payments on a lower quartile-priced home would take up just 23.2% of a typical first home buying couple's take home pay, in Wellington it would be 22.2% and in Canterbury it would be 25.6%.

That means that providing both of them are working, buying their own home should be achievable for typical first home buying couples in all regions of the country except Auckland.

See the charts below to compare the affordability figures for all regions:

PLEASE NOTE: The full suite of Reports for a) First home buyers (aged 25-29 yrs), both as individuals and as a couple, and b) Young family buyers (aged 30-34), both as individuals and as a couple (with one partner working full time, one half time, and a 5 year old child), are now published on our website.

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