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Good news for first home buyers

Good news for first home buyers as house prices and interest rates fall: Home Loan Affordability Reports show

Lower quartile house prices have plateaued throughout the country and have declined in Auckland for the last three months in a row, suggesting the property market has peaked in its latest cycle, according to the Home Loan Affordability Report.

The report tracks monthly movements in the Real Estate Institute of New Zealand's (REINZ) lower quartile selling prices (the price at which 25% of sales would be below that point and 75% would be above it) throughout the country and this shows that the national lower quartile price peaked at $308,500 in March and has since remained within a fairly narrow range, to end up at $299,125 in August.

In the overheated Auckland market a clearer trend is evident, with the lower quartile selling price peaking at $616,500 in May and then declining in each of the following months to hit $600,700 in August.

The lower quartile price was below its peak in 10 of the REINZ's 12 sales regions in August, including other recent property hot spots such as Queenstown-Lakes where it peaked at $403,900 in June and then declined to $371,900 in August.

In Wellington the lower quartile price peaked at $327,700 in February and was down to $311,500 in August and in Canterbury/Westland it peaked at $354,900 in April and was $350,600 in August.

Overall the figures suggest the prices for more affordable properties have flattened or declined slightly in recent months.

The only regions were August's lower quartile price was below the previous peak were Hawkes bay, where August's lower quartile price of $224,900 was equal to previous peak in February, and Nelson / Marlborough where the lower quartile hit an all time high of $308,800 in August.

The latest figures are consistent with recent reports suggesting that many residential investors have been selling their properties as near term prospects for further capital gains recede.

However is it good news for first home buyers because the easing in prices has occurred at the same as recent falls in mortgage interest rates, which has had a substantial impact on the cost of buying a home at the lower quartile selling price, particularly in Auckland.

The average two year fixed mortgage rate offered by the major banks has declined in each of the last three months and was 5.08% in August, the lowest it has been since began calculating average mortgage interest rates in 2002.

According to the Home loan Affordability Report, the combined effects of the easing in the lower quartile price and falling mortgage rates, reduced the mortgage payments on a lower quartile priced home in Auckland from $821.83 a week in May to $759.04 a week in August, a saving of $62.79 a week for a typical first home buying couple.*

In Wellington the weekly mortgage payments for a lower quartile priced home reduced from $406.05 a week in May to $366.07 in August (-$39.98 a week) and in Canterbury the weekly mortgage payments for lower quartile priced home declined from $429.08 a week in May to $419.20 in August (-$9.88).

Nationally, the weekly mortgage payments on a lower quartile priced home dropped form $376.15 in May to $349.25 in August (-$26.90).

However, while the fall in mortgage costs will be welcome news for first home buyers throughout the country, it is a case of homes become slightly less unaffordable, because housing prices in the region remain so high they even lower quartile priced homes are likely to still be out of reach for most first home buyers.

As well as tracking changes in house price and mortgage rates, the Home Loan Affordability Report also tracks changes in net household income for typical first home buyers, and how much of their income would be eaten up by mortgage payments.

The mortgage payments are considered affordable when they take up no more than 40% of a couple's net (after tax) income, and unaffordable if mortgage payments take up more than 40% of their net income.


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