House prices drop slightly in Auckland according to Home Loan Affordability Report

At least two more months of sales data will be needed before a trend will be evident. Photo/file
At least two more months of sales data will be needed before a trend will be evident. Photo/file

House prices may be starting to drop in Auckland - but it's too soon to tell if the latest data shows a trend.

The new mortgage lending restrictions introduced by the Reserve Bank officially kicked in on October 1, but most of the main banks had already been introducing them over the previous couple of months.

Interest.co.nz's regional Home Loan Affordability Reports for September showed the new loan-to-value-ratio mortgage lending restrictions on residential investment properties may be impacting house prices in Auckland.

The lower quartile selling price, where first home buyers will be looking, dropped from its all-time high of $695,600 in August to $682,100 in September.

But at least two more months of data are needed before a trend could be evident.

The lower quartile selling price is important for first home buyers and investors because it is the price point that 25 per cent of sales would be below, making it a proxy for the market segment where first home buyers and investors are most active.

The report for Auckland estimates the small drop in the lower quartile price combined with a minuscule fall in the average two year fixed mortgage rate would have reduced mortgage interest payments faced by a typical first home buying couple in Auckland by $16 a week to $705.60.

That would still have taken up 44.5 per cent of a typical Auckland first home buying couple's take home pay, assuming they both worked fulltime and earned the median wage for 25-29 year olds.

Mortgage payments are considered affordable when they take up no more than 40 per cent of after tax income, which means Auckland is still considered unaffordable for typical first home buyers, but slightly more affordable than it was in August when the mortgage payments on a lower quartile-priced home would have taken up 45.6 per cent of their take home pay.

The only other region where affordability improved in September was Southland, where the lower quartile price dropped from $157,900 in August to $153,700, still well below the high of $165,300 achieved in February.

However, lower quartile prices continued to increase strongly in all other regions in September, setting new record highs in Northland, Waikato/Bay of Plenty, Hawke's Bay, Taranaki, Wellington, Nelson/Marlborough, Canterbury, Central Otago-Lakes and Otago.

Affordability in these regions is continuing to worsen for first home buyers but overall remains within affordable levels, with mortgage payments on a lower quartile priced home taking up less than 40 per cent of a typical first home buying couple's pay in each region.

Some of the strongest growth in the lower quartile price has occurred in Wellington, where it jumped from $361,800 in August to $392,500 in September.

That had a significant impact on affordability, with the mortgage payments on a lower quartile priced home estimated to take up 22.8 per cent of a typical first home buying couple's pay, up from 20.79 per cent in August.

The trends evident in the Home Loan Affordability report are consistent with patterns seen in interest.co.nz's auction sales reports over the past few weeks, with investment apartments in Auckland becoming more difficult to sell.

It suggests investors may be struggling to purchase investment properties in Auckland because of the requirement to provide 40 per cent equity, and are instead looking for cheaper properties in the provinces, pushing up prices accordingly.

Many investors have also been buying for capital gains rather than the income stream residential properties can provide and may be avoiding the Auckland market if they feel the quick capital gains in the region may be slowing or coming to an end.

That's potentially good news for struggling first home buyers, who may start facing less competition from investors for lower priced properties.

However, one month's set of sales figures do not make a trend and the market is just at the very start of the summer selling season.

It is too soon to say whether the small drop in Auckland's lower quartile prices was the start of decline or the beginning of a flattening or even a small blip before they start heading back up again.

- NZ Herald

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