Yes they are. Thanks for stopping by.
I guess I better elaborate since you are here.
I wrote an article back in April 2021 looking at the affordability of owning a house in New Zealand not just in 2021, but relative to the last 30 years too. You can have a look at that article here.
Since affordability of housing is such a hot topic at the moment, we will provide an up to date analysis of house prices today, also relative to the past.
Median house prices nationwide are $790,000 currently. That is an increase of just $10,000 since 2021. An increase of just 0.5% per year for the last three years.
So what is everyone complaining about?
Well, buying a house is only one part of the equation. The other part is the ongoing monthly payments, largely dictated by current interest rates. And with floating rates at around 8.6% currently, that is a level not seen since 2008. For comparison, floating interest rates were 4.5% around the same time in 2021. Almost double now!
In other words, when demand for housing was still hot in 2021, it was because even though a lot for a deposit was needed, at least monthly repayments were more affordable for many. Now though, you can’t have such a large increase in interest rates in such a short amount of time without an impact on affordability. How much of an impact? We will explore that now.
Are monthly mortgage payments affordable?
Monthly mortgage repayments as a percentage of income
Assumes a 20% down payment on a 30 year mortgage, relative to median household income and median nationwide house prices.
The median mortgage now costing $4,904 a month or 51% of median household income. In 2021 a median mortgage costing $3,162 a month or 38% of income.
Almost $1,750 a month more expensive to own a home compared to three years ago. The 5% a year increase in incomes over the last few years no where near enough to keep up with the rapid increase in interest rates.
51% of income towards mortgage repayments is the highest level since my data began in 2001. 2007 the next closest at 43%. It is significantly higher than most of the 2010’s which hovered around 28-38%.
So yes, monthly affordability is the worst it has been in recent times, if not ever. And by a long way. I don’t have data on median household income prior to 2001 so can’t look prior to that.
So those first home buyers struggling to buy a home aren’t whingeing entitled snowflakes who aren’t willing to make the sacrifices required. It is really hard out there.
51% of the median income is a huge amount of money to be spending on the mortgage. This is pre tax income too. So a significant chunk more will come off for tax. Then you have other housing costs of insurance, rates, maintenance and so on. After that, the median first home buyer would be lucky to have more than 20% of after tax income left for food and other non housing expenses.
Again, an argument can always be made for the fact that first home buyers are not buying median priced homes. They should be buying starter homes is the popular refrain. Sure that would make affordability look slightly better. However, income is the other part of the formula that can’t be ignored. Many first home buyers are on lower incomes than the average New Zealander too due to their age and experience. Lower incomes on lower priced homes – it all evens out.
Is there any positive news on the time it takes to save for a deposit?
How long does it take to save for a house deposit?
House deposit required as a percentage of income since 2001
In some brighter news, the amount of income it takes to pay for a 20% deposit for a median income household has dropped from 157% to 137% in the last three years.
Now only taking 11 years to save enough for a 20% deposit! Down from 13 years. I say only tongue in cheek. It’s still a very long time.
Final thoughts
Slightly easier to buy a home now. Astronomically harder to keep up with the payments.
The only way to get monthly payments down is pay less for the house. Which is where we are at today.
Homebuyers are right trying to get sellers to reduce their price for sale. Otherwise the commitment to the monthly mortgage is too much. Many sellers aren’t budging. At least, no where near enough to meet the market.
Other than this stalemate, the only other change that will help is a reduction in interest rates. Many arguing we have reached the peak and inflation is getting under control. A reduction in interest rates will definitely help.
Just a 1% decrease in floating interest rate, sees a $500 a month decrease in mortgage repayments and a 5 percentage point drop in mortgages as a percentage of income to 46%. Still extremely expensive relative to income, but at least a bit better.
Since 2010, the average mortgage as a percentage of income has been 35%. Today we are at 51%. To get back to 35% we would need a drop in floating interest rates to approximately 5%. However, there is not even a guarantee we will see that level of affordability. What we do know though is the current levels of affordability are not sustainable and can’t last.
With many sellers not budging on price and anchored to the prices from late 2021, many are hoping for a drop in interest rates to help boost house prices. Whereas home buyers want a decrease in interest rates not to increase house prices, but just to help provide some small breathing room in their monthly budget. We are definitely in an interesting holding pattern where no one is winning.
If you need a personalised plan that helps with the decision to buy property or not, then get in touch and we may be able to help.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here