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Housing affordability best in over a year

Media release by Wizard Home Loans and

Wizard Home Loans affordability reports

For May 2008

Housing affordability best in over a year on lower interest rates

Lower interest rates and flat house prices helped improve housing affordability in May to its best level in more than a year, the Wizard Home Loans affordability report shows.

The monthly report prepared by shows housing affordability at its best levels since March last year and set to improve through the rest of 2008 as interest rates fall and house prices fall. The government’s tax cuts are also expected to improve affordability ratios as take-home pay rises slightly for most home-buyers.

However, housing affordability remains much worse than before the housing boom took off in 2002 and before interest rate rose from under 7% in 2003 to over 9% in 2008.

“Housing affordability is improving again after years of getting worse,” said John Grant, Wizard Home Loans, Director, New Zealand Business.

“The prospects for lower interest rates over the next year and a buyers’ market in the housing sector are making life slightly easier for home buyers,” Mr Grant said.

The Wizard Home Loans affordability report shows the average homebuyer needs to spend 80.6% of take-home pay from a single median income to afford the mortgage on the median house. This is down from 82.2% in April and 81.1% a year ago. This is the first time in 5 years that affordability has improved from a year ago.

This is the best affordability ratio since the 78.6% recorded in March 2007, but remains almost twice as bad as the 46% seen in May 2002, which was just before the housing market boom almost doubled house prices and interest rates rose sharply.

Most home-buyers are still forced to pool two or more incomes to afford the mortgage on the average house.

The biggest drivers in the improvement in May were a fall in the average two year fixed mortgage rate to 9.4% from 9.6% in April. Interest rates have fallen over the last two months as news of an economic slowdown has intensified, along with speculation that the Reserve Bank of New Zealand may be able to cut the official cash rate from 8.25% later this year.

The median house price was also flat at NZ$345,000 in May from April, and down 1.4% from a year ago.

The biggest improvement in home loan affordability was seen in Northland, where the affordability ratio improved from 93% to 78.8% in a month because of a 13.6% fall in the median house price there.

Eight out of 12 regions posted improvements in affordability. The biggest deterioration was in Queenstown, where the housing affordability ratio worsened to 123.7% from 116.8% a month.

Improvements were seen in Northland, Auckland, Waikato, Hawkes Bay, Manawatu/Wanganui, Nelson/Marlborough, Canterbury/Westland and Southland. Taranaki, Wellington, Central Otago Lakes and Otago all experienced worse housing affordability ratios, largely because of higher property prices.

Affordability for first home buyers also improved, with 70.6% of median take-home pay for a 25-29 year old needed to service the mortgage on the first quartile house. That’s better than the 72.4% seen in April and 73.4% a year ago.

Note to editors: The Housing affordability series from was first published in February last year and was sponsored by Fairfax Media up until last month. It is now sponsored by Wizard Home Loans.

Links to the regional reports are in the attached document, and accessable from


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