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Auckland remains a horribly expensive place for first-time home buyers

House prices at the bottom of the market are down more than $100,000 from last year’s peak in Auckland, but barely budged in Canterbury. This means first-time home buyers have been hit harder by rising interest rates in some areas and are less affected in others, according to the latest Home Loan Affordability Report. co.nz.

It shows that the Real Estate Institute of New Zealand’s lower quartile national selling price peaked at $670,000 in November last year and has since fallen to $630,000 in June this year.

The bottom quartile is the price at which 25% of properties sold each month are below and 75% are above, representing the most affordable segment of the housing market.

Normally, a $40,000 drop in the bottom quartile price would be good news for first-time home buyers, as it would mean they would need less money for a deposit and a smaller mortgage, which reduce their mortgage payments, all other things being equal.

Unfortunately, as house prices have fallen, mortgage interest rates have risen and between November last year and June this year the average two-year fixed rate charged by the major banks is increased from 4.08% to 5.43%.

So how would first-time home buyers fare in this mix?

First, the amount they would need for a 20% deposit on a lower quartile priced home would have gone from $134,000 to $126,000, saving them $8,000 (halve those numbers for a 10% deposit).

Second, the amount they would need to borrow if they had a 20% deposit would drop from $536,000 to $504,000, reducing their mortgage amount by $32,000.

If they had only had a 10% deposit, their mortgage amount would have dropped from $603,000 to $567,000, a decrease of $36,000.

So far so good – the numbers above suggest first-time home buyers are profiting from the current market slump.

It is when we factor in the effect of rising interest rates that things start to get complicated.

If a first-time homebuyer had a 20% down payment and bought a home at the bottom quartile price of $670,000 in November, mortgage payments would have been about $596 a week.

Had they waited until June, when the bottom quartile price had fallen to $630,000, mortgage payments would have been around $655 per week, up from $59 per week, even though the amount they would have borrowed would have decreased by $32,000.

If they only had a 10% deposit in the same scenario, mortgage payments would have gone from about $770 per week to $838, up $68 per week (taking into account the charges that banks apply to low capital loans).

So it’s swings and roundabouts for first-time home buyers right now.

However, the numbers in the examples above are based on national house prices, and while the variations in mortgage interest rates were the same across the country, there were big regional differences in what happened. housing prices at the lowest in the market.

There have been significant price declines in eight regions – Northland, Auckland, Bay of Plenty, Hawke’s Bay, Taranaki, Wellington, Nelson/Marlborough and Otago, where bottom quartile prices are down significantly from highs in the end of last year/beginning of this year.

In the other four regions – Waikato, Manawatu/Whanganui, Canterbury and Southland, prices have only fallen slightly from their peaks.

For these regions, there was more of a flattening of prices at the bottom of the market than a significant decline.

The only characteristic of price developments in all regions of the country is that prices are no longer rising.

The difference in price trends so far had a significant impact on the extent to which increases in mortgage rates would have affected first-time home buyers in different regions.

In the country’s most populous region, Auckland, the bottom quartile price peaked at $966,000 in November last year. By June of this year, it had fallen to $860,000, a seven-month drop of $106,000.

In the Wellington area, the bottom quartile price peaked at $785,000 in December of last year. By June of this year, it had fallen to $710,000, down $75,000 in six months.

But in Canterbury, where prices have simply flattened, the bottom quartile price peaked at $550,000 in February/March this year. By June, it had only fallen to $544,000.

What does this mean for first-time home buyers?

The amount needed for a 20% deposit on a lower quartile priced house in Auckland has risen from $193,200 when prices peaked in November last year to $172,000 in June this year, a saving of $21,200.

A 10% deposit went from $96,600 to $86,000 over the same period, down $10,600.

This means that the amount to borrow to finance the purchase with a 20% down payment fell from $772,800 in November of last year to $688,000 in June, a reduction of $84,800.

The amount expected to be borrowed with a 10% deposit fell from $869,400 in November last year to $774,000 in June this year, down from $95,400.

But with mortgage interest rates rising from 4.08% to 5.43% during this period, how would that have affected mortgage payments?

Based on the figures above, they would have gone from around $859 per week in November last year to $894 in June this year, for buyers with a 20% down payment, an increase of 35 $ per week.

For buyers with a 10% down payment, mortgage payments would have risen from about $1,111 per week to $1,143 per week, up $32 per week.

So the trend for first-time home buyers in Auckland, where prices have fallen significantly since peaking late last year, is that they now need less money for a deposit and a smaller mortgage to buy a home at the lower quartile price, but will face a slight upside. mortgage payments.

What about Canterbury where prices have simply flattened out?

Unsurprisingly, the amount needed for a 20% deposit on a lower-quartile-priced house in Canterbury barely changed from $110,000 at March’s high to $108,800 in June, down just $1,200. , while the amount needed for a 10% deposit is down just $600 over the same period.

The size of the corresponding mortgages increased from $440,000 to $435,200 with a 20% deposit and from $495,000 to $489,600 with a 10% deposit.

During the same three-month period, from March to June, the average two-year fixed mortgage rate fell from 4.41% to 5.43%, which pushed mortgage payments up by $509 per week. at $565 per week (+$56) with a 20% deposit. , and from $656 to $723 (+$67) per week with a 10% deposit.

This means first-time home buyers in Canterbury are getting very little benefit so far in terms of how much they need for a deposit and how much they have to borrow, but are being hit harder by the rise interest rates.

But that doesn’t mean first-time home buyers are better off in Auckland than in Canterbury.

Auckland remains a horribly expensive place for first-time home buyers and it’s likely that even with the most recent price declines in the region, average first-time home buyer salaries are likely still priced out of the market.

The tables below outline key affordability metrics for typical first-time home buyers in all major urban neighborhoods, with a 10% or 20% down payment:

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