KEY POINTS:
Lower interest rates and flat house prices helped housing affordability improve to its best level in more than a year, according to a new report.
Housing was more affordable than at any time since March last year and set to improve through the rest of 2008 as interest rates and house prices fall, interest.co.nz, which prepared the report, said today.
Upcoming tax cuts were also expected to improve affordability ratios as take-home pay rose slightly for most home-buyers.
In May, the average homebuyer needed to spend 80.6 per cent of take-home pay from a single median income to afford the mortgage on a median-priced house.
That was down from 82.2 per cent in April and 81.1 per cent a year ago. It was the first time in five years that houses had become more affordable than one year earlier.
But housing affordability remained much worse than before the housing boom took off in 2002 and before interest rates rose from under 7 per cent in 2003 to more than 9 per cent in 2008.
The report showed affordability was at its best since the 78.6 per cent recorded in March 2007, but still well off the 46 per cent in May 2002.
The biggest drivers in the improvement in May were a fall in the average two-year fixed mortgage rate to 9.4 per cent, from 9.6 per cent in April.
Interest rates have fallen during the past two months as news of an economic slowdown intensified, along with speculation that the Reserve Bank may be able to cut the official cash rate from 8.25 per cent later this year.
The median house price was also flat at $345,000 in May from April, and down 1.4 per cent from a year ago.
Regionally, the biggest improvement in home loan affordability was seen in Northland, where the affordability ratio improved from 93 per cent to 78.8 per cent in a month because of a 13.6 per cent fall in the median house price.
Affordability improved in eight out of 12 regions, while the biggest deterioration was in the Central Otago Lakes area, where affordability worsened to 123.7 per cent from 116.8 per cent.
Other regions with worsening affordability, largely because of higher property prices, were Taranaki, Wellington and Otago.
For first home buyers affordability improved, with 70.6 per cent of median take-home pay for a 25 to 29-year-old needed to service the mortgage on the first quartile house. In April it was 72.4 per cent and a year ago 73.4 per cent.
- NZPA
