KEY POINTS:
Falling house prices, coupled with lower interest rates have driven the biggest improvement in home affordability in the past six years.
The Wizard Home Loans Affordability report was released today, showing June's improvement was the biggest seen since it began in 2002. Home affordability is now the best since February last year.
This monthly report measures the proportion of a median after tax income needed in each part of New Zealand to service an 80 per cent mortgage on the median house price in that region.
Last month it took 78.5 per cent of the median take-home pay to service the mortgage on the median house in June, down from 80.6 per cent in May and down from a peak of 83.8 per cent in November last year.
The previous best level of affordability was in February last year when the affordability ratio stood at 74.7 per cent.
The report also shows the proportion required for a first home buyer (someone aged 25-29 that has saved 20 per cent of their after tax income in the previous five years) buying a cheaper house (first quartile price). The first home buyer's affordability ratio improved to 69.1 per cent in June from 70.6 per cent in May and is also back at its best levels since February 2007.
Affordability looks set to improve through the rest of 2008 as interest rates either fall or are stable while house prices keep falling. Tax cuts due from October 1 are also expected to improve affordability ratios as take-home pay rises slightly for most home-buyers.
"Housing affordability is now improving rapidly as the double impact of lower interest rates and lower house prices drive down debt servicing costs," said John Grant, Wizard Home Loans, Director, New Zealand Business.
"Buyers are in control in the housing market and the prospect of lower interest rates and even lower house prices will make it easier for New Zealanders to get into this market," Grant said.
The improvement in affordability in June was the biggest in the history of the report measuring affordability back to January 2002.
Despite last months improvement in the survey, home affordability remains much worse than before the housing boom took off in late 2003 and before interest rates rose from less than 7 per cent in 2003 to over 9 per cent last year. House prices rose 64 per cent between November 2003 and November 2007.
Most home-buyers still need to pool around two median incomes to afford a mortgage on the median house.
The biggest drivers in the improvement in June were a fall in the average two year fixed mortgage rate to 9.2 per cent from 9.4 per cent in May. Interest rates have fallen over the last three months as news of an economic slowdown has intensified, along with speculation that the Reserve Bank of New Zealand may be able to cut the official cash rate from 8.25 per cent as early as next week.
The median house price fell to NZ$340,000 in June from NZ$345,000 in May, and is down 3.4 per cent from the peak in house prices in November last year.
The biggest improvements in home loan affordability were in Manawatu/Wanganui and Taranaki where house prices fell sharply.
Eleven out of the 12 regions posted improvements in affordability. The only region to see affordability worsen was Waikato/Bay of Plenty, where the affordability ratio worsened to 77.1 per cent in June from 76.5 per cent in May because of a higher median house price.
- Interest.co.nz
