Housing affordability plummets in June quarter

1.00pm

Rising house prices and interest rates in the June quarter caused the steepest decline in home affordability since the December 1996 quarter, the latest AMP Home Affordability Report shows.

The index declined 7.9 per cent in the quarter with the Auckland region leading the way with an 11.2 per cent decline.

The annual decline in affordability was 8.5 per cent -- the eighth consecutive fall in affordability in that series.

AMP said the drop was mainly due to rising home prices. The median price of a home rose 7.4 per cent to $248,000 in the June quarter.

A 1.5 per cent lift in average weekly earnings, was insufficient to offset the rise in house prices and interest rates.

Twice during the quarter the Reserve Bank hiked the Official Cash Rate by quarter of a percentage point. Retail banks hiked mortgage rates commensurately.

"We've had two years of steady rises in the property market and that has severely impacted home affordability," said AMP's savings and investment manger Roger Perry.

Although heralding a slowdown in residential sales, the latest Real Estate Institute figures point to a continued lift in house prices led by a strong showing from the Auckland region, Mr Perry noted.

Quarterly dwelling sales were reported 1.9 per cent down on the same period last year but sales remained historically high despite the first reported quarterly drop in residential sales since March 2001.

Mr Perry said there was some anecdotal evidence that the recent property boom had reached its peak.

"But if you strip out the probable activity of speculators and investors, there appears to still be a great deal of confidence in the property market.

He said other research, such as AMP's savings survey, had found that, for example, more and more young people were saving towards a home deposit as they realise the cost of home ownership had risen and was unlikely to fall substantially in the near future.

"However the market conditions may soon force investors to look elsewhere for stronger yields and we expect a move of investment funds away from direct property investment and into listed property trusts and managed funds."

Massey University real estate lecturer Graham Crews said the property market was still "very, very busy".

"The level of demand for property and growth in prices reflects the continuing strength of the economy and confidence in the property market."

Of the 11 regions, all posted a decline in home affordability except Northland which had a 2.9 per cent improvement.

The Auckland decline was followed by Nelson/Marlborough (9.9 per cent), Taranaki (6 per cent), Otago (4.3 per cent), Wellington (4.1 per cent), Hawke's Bay (4 per cent), Southland (3.3 per cent), Waikato/Bay of Plenty/Gisborne (2.9 per cent), Canterbury/Westland (2.2 per cent) and Manawatu/Wanganui (0.5 per cent).

The median dwelling price moved up 18.1 per cent over the past year from $210,000 to $248,000.

For the fourth consecutive quarter South Island regions dominated at the high end of the twelve monthly affordability decline. Otago ranked highest for the second consecutive quarter at 37.5 per cent followed by Canterbury/Westland (23.8 per cent), Southland (18.8 per cent), and Nelson/Marlborough (16.1 per cent).

Hawke's Bay ranked next in line at 10.5 per cent followed by Auckland (9.3 per cent), Taranaki (8.2 per cent), Manawatu/Wanganui (6.3 per cent), Wellington (1.1 per cent) and Waikato/Bay of Plenty/Gisborne (0.1 per cent).

Again, the only region to report a twelve monthly affordability improvement was Northland at 1.4 per cent.

All regions reported an increase in median dwelling Prices over the past year. South Island regions continued to lead the market up with a strong annual lift in house prices. Otago (51 per cent) was followed by Canterbury/Westland (34.5 per cent), Nelson (26.7 per cent) and Southland (25.5 per cent).

- NZPA