Home loan affordability has improved in New Zealand, thanks to a fall in both house prices and interest rates during January. With the national median house price now sitting at $426,000 and the average two year fixed rate down to 5.89 percent, homes are 4 percent more affordable than they were in December. This downward pressure could gather momentum, with some economists predicting ongoing price adjustments over the next few years.
According to the latest data from the Real Estate of New Zealand (REINZ), the median house price fell from $450,000 to $426,000 in January. The improvement comes on the back of a fall in fixed term mortgage rates, with the average rate also dropping over the month from 5.97 percent to 5.89 percent. With the average weekly mortgage payment now at $501.13 compared to $533.19 in December, home owners are feeling some relief.
First home buyers also had some good news, with the average lower quartile house price dropping from $305,000 to $287,500 over the month. That puts the average weekly mortgage payment at $374.26 for first home buyers, dropping from $402.97 in December. Despite these dropping figures, however, housing is still significantly less affordable than it was a year ago and people are still over stretching on their mortgage payments.
According to the latest AMP360 Home Loan Affordability Report, mortgage repayments account for 60.3 percent of the after tax pay of a typical buyer on a median income. Compared to 57.4 percent of income in January 2014 and 53.6 percent of income in January 2013, affordability is still declining on a long term basis. With mortgage payments considered unaffordable when they account for more than 40 percent of income, it's easy to see why so many people are struggling.
The economic landscape may be changing, however, with some economists predicting an adjustment to house prices over the next few years. While there has been some talk of a large price correction up to 20 percent, most forecasts are for a steady if uncertain decline. "Our forecast has been for declines of 2 per cent per annum in 2017 and 3 per cent in 2018 so 5 per cent overall. But there's a wide range of possibilities and a sharper decline is certainly a possibility." said Dominick Stephens, Westpac's chief economist in a recent report.
While interest rates are the number one factor behind these predictions, supply levels over the next few years are also likely to have an impact. "So for some time, we have been forecasting declining house prices later this decade and we have been for many years. The basis we have for those predictions is interest rates. For now, they're falling and we expect house price appreciation." said Stephens, adding "But later in the decade, I would expect them to be higher than they are now so we would expect house prices to decrease."
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