Economic times may be tough but the good news is that housing in New Zealand is becoming more affordable.
A sharp reduction in mortgage rates drove a record improvement in housing affordability in November to its best level in 3-1/2 years, the Wizard Home Loans Affordability report showed when it was released today.
Banks and other lenders have slashed mortgage rates by around 75 basis points to an average 7.5 per cent for two-year fixed rate mortgages in November.
And rates have been cut further since the end of November after the Reserve Bank cut the OCR by a record 150 basis points to 5 per cent on December 4.
That means the proportion of an after tax median income needed to service the mortgage on a median priced home dropped to 63.9 per cent in November from 67.9 per cent in October.
The 4 per cent reduction was the biggest monthly improvement on record in the Wizard Home Loans Affordability report and takes this measure to its best level since July 2005.
The record worst level of 83.2 per cent was in November last year when house prices hit their peak. The best level was 45 per cent seen in 2002 before the house price boom.
"This will be the best Christmas in home affordability terms in four years," said Wizard Home Loans director John Grant.
"Tax cuts, lower house prices and interest rates are all working together to make housing more affordable going into 2009."
Further interest rate reductions and more tax cuts in April next year will make it much easier for first home buyers to enter the market, he said.
This year was rough for the economy and 2009 looks tough too, he said.
"But there has been a big silver lining in the form of much better housing affordability."
The report also shows an improvement in the proportion required for a first home buyer - defined as someone aged 25-29 who has saved 20 per cent of their after tax income in the previous five years and who is buying a cheaper house (first quartile price).
The first home buyer's affordability ratio improved to 54.5 per cent in November from 58.4 per cent in October and is also back at its best levels since August 2005.
The national median house price rose to $337,500 in November from $335,000 in October and is down 4 per cent from its peak in November 2007.
The biggest improvement in home loan affordability was in Southland where the ratio improved dramatically to 34.2 per cent from 44.1 per cent in October, largely because of a 17 per cent slump in the median house price there to $165,000.
There were also big improvements in Taranaki, Wellington, Waikato and Queenstown because house prices fell sharply.
The only region where affordability worsened was Hawke's Bay and Gisborne, where house prices rose.
Southland remains the most affordable region, while Central Otago Lakes (Queenstown, Wanaka) was the least affordable at 96.9 per cent, although it dropped below 100 per cent for the first time in 2-1/2 years.