Rising house prices drive down national affordability

Wednesday 21st January 2004

The affordability of New Zealand homes dropped almost six% in the quarter ending December 2003 as house prices continued to climb across the country, according to the latest AMP Home Affordability Report.

The New Zealand Home Affordability Index declined 5.9% in the December quarter, as the increase in median dwelling prices offset a slight fall in interest rates.

The New Zealand Median Dwelling Price showed a further strong lift ending the quarter at an all time high of $235,000, up 9.3% from $215,000. All eleven regions in the Index reported a quarterly lift in Median Dwelling Prices. Recent anecdotal evidence of a slowdown in sales was not supported in the latest residential market report by the Real Estate Institute of New Zealand. Quarterly dwelling sales reached a record high of 32,332, 18.8% up on the same period last year (27,223). A fall in interest rates for the fifth consecutive quarter continued as the main driver in sustaining strong market activity. Interest rates, now at their lowest since publication of the index commenced in 1990, are expected to rise in the first half of 2004.

AMP Financial Services Managing Director Ross Kent said, "The record highs in house sales and median dwelling prices provides evidence that New Zealander's love affair with residential property has continued unabated.

"However, there are plenty of warning signs that the current housing boom will soon end as interest rates may rise, new housing stock meets demand and net immigration growth slows. There are also signs that rental yields are beginning to slip. As with any investment, people should understand their risk profile and be wary of exposing themselves to a situation where borrowings outstrip their ability to repay.

"Our message is, diversify, keep your investment expenses low and keep your investments simple," Kent said.

Nine regions recorded a quarterly decline in home affordability. Otago recorded the steepest decline at 13.4%, followed by Wellington (12%), Canterbury/Westland (10%), Taranaki (7.3%), Southland (5.9%), Nelson/Marlborough (5%), Hawke's Bay (5%), Manawatu/Wanganui (4.1%) and Waikato/Bay of Plenty/Gisborne (1.1%). Both regions at the top of the North Island, Auckland (1.6%) and Northland (1.3%), recorded a quarterly affordability improvement.

The New Zealand index reflected a twelve monthly decline in home affordability (7.6%) for the sixth consecutive quarter. Home sales for the past year reached an all time high of 118,954 surpassing both the record yearly sales of 113,845 reported in the last quarter and the record calendar year sales of 101,837 in 2002. The Median Dwelling Price moved up 20.5% over the past year from $195,000 to $235,000.
Cont'...
Nine of the eleven regions recorded a twelve-monthly decline in home affordability. For the second consecutive quarter the same three South Island regions dominated at the high end of the twelve monthly decline. Nelson/Marlborough ranked highest at 36.5%, followed by Southland (21.6%) and Otago (17.9%). Hawke's Bay ranked next in line at 13.8% followed by Taranaki (9.3%), Canterbury/Westland (8.5%), Wellington (3.5%), Auckland (2%) and Northland (1.1%). The two regions to report a twelve monthly affordability improvement were Manawatu/Wanganui (2.9%) and Waikato/Bay of Plenty/Gisborne (1.2%). All regions reported an increase in Median Dwelling Prices over the past year. Nelson/Marlborough led the market up (for the second consecutive quarter) with a lift of 48.7% followed by Southland (37.5%) and Otago (34.5%).

According to Graham Crews, Senior Lecturer in Real Estate at Massey University, the December quarter included a slight fall in average fixed and floating interest rates - from 7.03% to 6.89% - and that interest rate level is likely to feed through into the current quarter.

"We expect rates to start rising but until they do, and that is partly dependent on U.S. rates and the U.S. economic recovery, we are likely to see sustained activity in the housing market particularly in sought-after coastal and metropolitan areas," he said.

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