Rising house prices have more than offset falling interest rates in 11 of 12 regions over the last six months – Home loan Affordability Reports

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By Greg Ninness

Rising property prices took the shine off falling interest rates in October, making home ownership less affordable for first home buyers in most parts of the country last month.

Interest.co.nz’s latest Home Loan Affordability Reports show that the average of the two year fixed mortgage rates charged by the major banks declined to 4.47% in October, down from 4.51% in September.

Normally that would be good news for first home buyers, but in most parts of the country the decline in interest rates was more than offset by the rise in lower quartile house prices, making home ownership less affordable for first home buyers.

The Real Estate Institute of NZ’s national lower quartile selling price increased from $380,000 in September to a record high of $390,000 in October, and rises were recorded in eight regions around the country (Northland, Auckland, Waikato, Hawkes Bay, Taranaki, Manawatu/Whanganui, Canterbury, and Otago.

Only three regions (Bay of Plenty, Nelson/Marlborough and Southland) recorded declines in October’s lower quartile price compared to September, while it was unchanged in Wellington.

Five regions recorded record highs in the lower quartile price – Hawkes Bay, Taranaki , Manawatu/Whanganui, Canterbury and Otago, while Wellington’s lower quartile price of $450,000 equalled September’s record high. 

Home Loan Affordability Reports are available for each of the following regions and cities (click to view).
Northland Region
Whangarei District
Auckland Region
Rodney District
North Shore District
Waitakere District
Central Auckland District
Manukau District
Papakura District
Franklin District
Waikato Region
Hamilton District
Bay of Plenty Region
Tauranga District
Rotorua District
Hawke’s Bay Region
Napier District
Hastings District
Gisborne District
Taranaki Region
New Plymouth District
Manawatu/Whanganui Region
Palmerston North District
Whanganui District
Wellington Region
Masterton District
Kapiti District
Porirua District
Hutt Valley District
Wellington City
Nelson/Marlborough Region
Nelson City
Canterbury Region
Christchurch District
Timaru District
Otago Region
Dunedin District
Queenstown-Lakes District
Southland Region
Invercargill District
All New Zealand

The net effect of the rise in the lower quartile price and drop in mortgage interest rates was that the mortgage payments on a lower quartile-priced home would have increased in eight regions (Northland, Auckland, Waikato, Hawkes Bay, Taranaki,Manawatu/Whanganui, Canterbury and Otago)  in October compared to September, and declined in four (Bay of Plenty, Wellington, Nelson/Marlborough and Southland).

That trend is even more evident over the last six months.

Although it has been a difficult winter for the housing market in many parts of the country, lower quartile prices were higher in October than they were in April in 11 of the REINZ’s 12 price districts, with the rise in price being sufficient to more than offset the fall in mortgage interest rates and the growth incomes that occurred over the same period.

That meant home loan affordability for typical first home buyers has worsened over the last six months in 11 of 12 regions around the country.

The Bay of Plenty is the only region to have gone against the trend, with the region’s lower quartile price declining from $430,000 in April to $420,000 in October, which combined with lower interest rates and slowly rising incomes has improved home loan affordability for typical first home buyers in the region.

But for aspiring first home buyers everywhere else, the latest figures make for glum reading.

They will be a disappointment to those who had hoped that the subdued winter housing market would lead to a fall in prices and improved affordability but they also have implications for borrowers generally.

There has been speculation that the Reserve Bank may consider easing back on the Loan-to-Valuation Ratio (LVR) restrictions that apply to new mortgage lending by banks.

But if the Reserve Bank believes that the taniwha of house price inflation is lurking just beneath the surface of an otherwise flat market, it may be reluctant to risk stirring it by adjusting the current LVR settings.

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