Dream of own home becoming nightmare

Soaring house prices and mortgage interest rate rises are killing the dream of home ownership for many New Zealanders.

AMP's quarterly home affordability index released today showed its steepest annual decline since the height of the last property boom in 1996.

The heated property market is leaving many would-be homeowners long-term renters, prompting the Real Estate Institute to urge the Government to step in and help.

AMP general manager Roger Perry said young buyers were being forced out of the market by inadequate wages which had failed to keep pace with rising house prices and mortgage costs.

Interest rates rose six times last year but are picked to be relatively stable this year. The official cash rate was left unchanged yesterday.

That, coupled with a 46 per cent house price increase between 2001 and 2004, has meant owning a home is now beyond the reach of many.

The AMP index tracks house prices, wages and mortgage costs to come up with a measure showing how affordable houses are.

It showed a 15.1 per cent decline in the last 12 months and has been dropping each quarter for more than two years. In other words, houses are becoming less affordable.

Westpac chief economist Brendan O'Donovan said buying a house was getting harder because wages were so far behind and prices were going up so fast.

The median national house purchase price of $260,000 was now six-and-a-half times the gross annual average wage of $45,000.

"If people spent none of their take-home pay, they could pay off a house within those six-and-a-half years," he said.

"People can't just stop eating and living and spend all their money on paying off the house."

The differential between house prices and wages was at record levels.

Mr O'Donovan said interest rates were being picked to hold firm in the last half of this year, which is some comfort to borrowers.

In the 1980s, house prices were roughly three times the average annual wage.

This climbed in the 1990s to four times the average.

Mr O'Donovan said houses which cost $178,000 in December 2001 were now worth $260,000, a 46 per cent rise in three years.

In 2004, the national median sales price rose 13.5 per cent.

Prices have recovered since averages dipped at the end of last year, stifling pessimistic predictions. Real Estate Institute president Howard Morley said declining affordability was an extremely worrying trend and one which his organisation had urged the Government to change.

"The Government needs to help first home buyers into homes and they have promised to do that but we don't know what form it will take. It doesn't matter how it happens, as long as there is a genuine benefit."

Harcourts chief executive Bryan Thomson said that this month was one of his firm's best, with agents from the rural/lifestyle divisions selling properties worth $47.4 million in the first two weeks alone.