Home affordability declines

Rising house prices and an increase in interest rates resulted in a downturn in home affordability in New Zealand, according to the latest AMP Banking Home Affordability survey. The sudden 4.7% downturn in the March 2002 quarter followed a record high in affordability in the December 2001 quarter.

The New Zealand Median Dwelling Price rose 5.6% over the quarter to a record high of $186,000. Home sales soared to a six-year high for monthly sales (8,733) in February. The other key factor in the home affordability decline was the end of the steady drop in interest rates marked by the Reserve Bank raising the official cash rate 0.25%.

AMP’s Head of Retail Banking, Michael Guggenheimer said, "While house prices and interest rates are rising again, the home buying environment remains positive. There is plenty of choice for buyers in terms of properties and types of mortgages. Today’s low inflation economy means the risk of high interest rates has diminished and home owners should weigh up carefully the options of fixed or floating interest rates."

Seven of the 11 regions surveyed recorded a quarterly decline in home affordability. Otago recorded the steepest decline (6.3%) followed by Southland (5.6%), Hawke’s Bay (4.9%), Auckland (4.7%), Manawatu/Wanganui (4.6%), Canterbury/Westland (2.1%) and Waikato/Bay of Plenty/Gisborne (0.4%). The remaining four regions all recorded a slight improvement in home affordability, apart from Taranaki which recorded a 9.8% improvement in affordability.

However, all regions recorded a strong improvement of 17.6% in the 12 months to March 2002. Northland and Canterbury/Westland recorded the highest improvements for the second consecutive quarter (26.4% and 24.9%) followed by Taranaki (22.9%), Manawatu/Wanganui (21.3%), Nelson/Marlborough (21.1%), Waikato/Bay of Plenty/Gisborne and Wellington (20%), Auckland (19.7%), Southland (17.6%), Otago (16.2%) and Hawke’s Bay (13.6%).

Median Dwelling Prices lifted over the year in all regions except Northland and Canterbury/Westland which both recorded price declines.

Southland remains the most affordable region followed by Taranaki. Auckland scores consistently as the least affordable region in the country.

Graham Crews, Senior Lecturer in Real Estate at Massey University said, "Home buyer activity has been steadily improving over the past 12 months. This is clearly shown in the number of house sales in February (8,733) reaching a six year high. Quarterly sales reported by the Real Estate Institute were also up significantly by 39.4%."

AMP Banking Home Affordability Survey

The quarterly report is prepared for AMP Banking by Massey University’s Real Estate Analysis Unit. It combines data on housing prices, mortgage interest rates and average weekly earnings to produce a home mortgage affordability index indicator. The survey, conducted since 1988, uses data information supplied from Statistics New Zealand and the Real Estate Institute of New Zealand.