A monthly survey

FOR IMMEDIATE RELEASE
Home loan affordability

A monthly survey

This is a new series designed to measure how much of average weekly take-home pay is required to make a standard mortgage repayment for an average house.

The full Report is now available on-line at www.interest.co.nz/HLA/HLA-NZ-March2007.asp
which includes links to all the Regional sections.

There is a companion Opinion piece relating to this topic here >>> www.interest.co.nz/comment27March2007.asp

As at the end of February 2007, the New Zealand average was an eye-popping 73.5%, up significantly from both January 2007 (71.4%) and February 2006 (65.5%).

That is, it now takes at least 73.5% of the average take-home pay to afford a standard mortgage payment of a median-priced house, as at February 2007.

In January 2002, five years ago, it took 40.3% of take-home pay to make a mortgage payment on a median house.

In fact, this series can also measure the impact of more recent events. The RBNZ OCR increase has pushed mortgage interest rates higher, along with generally rising wholesale money costs. As at 23 March, with those higher interest rates in place, the proportion of weekly take-home pay needed to service a new mortgage would have risen to 74.1%.

The index methodology is detailed in the attached document.

The drivers of the February 2007 increase were …
- median house prices rising +2.4% since January 2007, +13.6% since February 2006
- benchmark interest rates rising from 8.199% in January 2007 and 7.932% in February 2006 to 8.305% in February 2007

while take-home weekly pay estimates rose from $663.53 in January 2007 and $637.33 in February 2006 to $666.23 in February 2007.

Affordability impacts vary widely across the nation.

The least affordable regions are currently (February 2007):
- Central Otago Lakes 104.4% of take-home pay
- Auckland 92.0%
- Northland 78.3%

The most affordable regions are currently (February 2007):
- Southland 37.7% of take-home pay
- Manawatu/Wanganui 52.2%
- Otago 54.5%

What seems most striking is that six of the twelve regions surveyed have home loan payments at levels above 70% of average take-home pay. These six regions account for 67% of the population. This means that for more than two-thirds of the country it will take at least two, and in some cases up to three full-time average incomes to afford the mortgage on a median-priced house.

This index is designed to be a benchmark. Home buyers on average incomes may well choose to purchase a house below the median price level, and that will make their transaction more affordable. This survey does not have access to lower-quartile house price data.

But the changes in prices and interest rates reported here will be very similar no matter what band the home buyer is in. Home loans are getting less affordable for most people because house prices and interest rates are rising faster than take-home pay.

A full report for each region is available on-line at www.interest.co.nz/HLA/HLA-NZ-March2007.asp

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