It seems improvements in affordability are becoming a medium-term trend.
The latest Massey University Home Affordability Report shows an improvement in affordability at a national level, as well as in 13 out of the 16 regions, in the second quarter of 2019.
Improvements were driven by declining house prices in many regions, combined with a reduction in mortgage interest rates and a modest 1.3 per cent increase in wages, says report author David White from Massey’s School of Economics and Finance.
“While it is difficult to forecast affordability, we could be seeing a medium trend forming,” he says. “We have had two quarters that have been positive for affordability and we are going into the winter quarter, which is seasonally muted for house prices. We also have a positive economic environment for continued low interest rates and income growth.”
While national affordability improved by a modest 1.2 per cent over the most recent quarter, the annual results show a solid increase in affordability of 5.4 per cent.
“The key yearly drivers of this improvement are a 5.35 per cent decrease in residential mortgage rates, which are down to 4.78 per cent from 5.05 per cent a year ago,” Mr White says. “Incomes have also increased by 3.2 per cent nationally over the past year so these two things have offset the 3.2 per cent increase in median house prices.”
Gisborne bucks the trend
Only three regions have declined in affordability over the most recent quarter, and over the past 12 months only four regions are showing declines. The most notable of these is Gisborne, where affordability has declined by 44.1 per cent over the past year.
“Gisborne’s decline in affordability has been driven by increasing prices,” Mr White says. “In the most recent quarter, alone, the region’s median house price when up by 12.8 per cent or $50,000. The Real Estate Institute attributes this increase in Gisborne to strong growth in higher-end properties, combined with strong demand and limited stock availability.”
At the other end of the scale, Northland showed an 11.6 per cent improvement in affordability over the most recent quarter, which was driven by a decrease in the region’s median house price. Northland is also showing an 11 per cent improvement in annual affordability, second only to West Coast, which has improved by 22.5 per cent over the past year.
The national house price-to-income ratio is also showing improvement for the quarter, with house prices moving from 8.8 to 8.9 times annual wages. Auckland remains the country’s least affordable region and median house prices there are 12.2 times annual wages.