KEY POINTS:
Tax cuts, strong wage growth and lower interest rates have combined to improve housing affordability to its best level since May 2006, says new research.
The Wizard Home Loans Affordability report for October has been affected by the national median after tax income rising almost $20 a week in October, thanks to tax cuts and higher wages, while a significant drop in interest rates cut the expected mortgage payment by almost $10 a week.
These combined to reduce the proportion of an after tax media income needed to service the mortgage on a median priced home to 68.2 per cent in October from 71.2 per cent in September.
This was the second biggest monthly improvement on record in the Wizard Home Loans Affordability report and takes this measure to its best level since May 2006. The biggest improvement on record was in August this year when this ratio improved by 3.2 per cent.
Housing affordability has improved from its record worst level of 83.2 per cent in November last year when house prices hit their peak. However, affordability remains considerably worse than the 45 per cent seen in 2003 before the housing boom.
"The trend since early 2008 of improving home loan affordability is now clear," said John Grant, Wizard Home Loans, Director, New Zealand Business.
"All four factors of house prices, incomes, tax rates and interest rates are working together to make housing more affordable for many," Mr Grant said.
"Expected interest rate cuts later this year will further improve affordability into 2009," he said.
"The credit crunch is hurting many in the global economy, but better housing affordability is one of the silver linings that first home buyers can look forward to through the difficult months ahead."
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.
Affordability looks set to improve through late 2008 and into early 2009 as interest rates fall at the same time as house prices keep falling. Most economists expect the Reserve Bank to cut the Official Cash Rate by a further 100 basis points to 5.5 per cent on December 4, with many seeing this key rate falling to as low as 4 per cent next year.
However, most home-buyers are still forced to pool around two median incomes to afford the mortgage on the median house.
The biggest improvements in home loan affordability were in Auckland, Waikato-Bay of Plenty and Nelson/Marlborough, where house prices fell significantly. Northland and Taranaki were the only areas to experience a deterioration in affordability because of higher house prices.
Nine out of the 12 regions posted improvements in affordability, while two saw deteriorations and one (Southland) was unchanged.
Southland remains the most affordable region with its ratio at 44.2 per cent, while Central Otago Lakes (Queenstown, Wanaka) was the least affordable at 104.3 per cent.
- INTEREST.CO.NZ
