Bargains excite home buyers

By CHRIS DANIELS consumer reporter

Buying a home is becoming easier as interest rates and house prices fall and wages go up.

Massey University researchers say their index of home affordability has increased 11.1 per cent in the three months to June 2001.

It is the first time in more than two years that the index has improved for all parts of New Zealand and is the third consecutive quarter the National Home Affordability Index has gone up.

The news is good for first-home buyers, but more mixed for people who own a house and are looking to sell. Their house may not fetch so much, but the new one may be less expensive.

Massey senior real estate lecturer Graham Crews said the "planets were in alignment" for the New Zealand market.

House prices and interest rates were down, average weekly wages were up and the number of homes sold each month was increasing.

The biggest factor was the continuing drop in interest rates, which had yet to bottom out.

First-home buyers, whose decision to buy is more strongly tied to interest rates, are returning to the housing market, says Real Estate Institute president Rex Hadley.

While lower median prices might sound bad for those people selling, they were also buying in the same market, he said.

The median price for a house dropped by 2 per cent, from $173,500 to $170,000.

Institute figures show that the number of homes sold in the three months studied went up 13 per cent, from 17,373 last year to 19,626 this year.

AMP Banking marketing manager Karen Clough said conditions had resulted in an improved buyers' market.

"The report reinforces that it is an ideal time for first-home buyers and existing home owners to consider purchasing."

The survey, conducted by Massey University for AMP, shows all regions reporting quarterly improvements in affordability.

Three of the top four regions were in the South Island.

The best place to be was Manawatu/Wanganui, which recorded the highest quarterly improvement (20.8 per cent), followed by Southland (17.2 per cent), Otago (16.3 per cent) and Canterbury/Westland (15.7 per cent).

Auckland showed the second highest quarterly improvement in the North Island with 13.5 per cent, followed by Waikato/Bay of Plenty/Gisborne (12.9 per cent) and Hawkes Bay (12.4 per cent - its third consecutive quarterly increase).

Over 12 months, median dwelling prices dropped in Auckland, Waikato/Bay of Plenty/Gisborne, Canterbury/Westland and Otago, and remained unchanged in Manawatu/Wanganui and Southland.

The Bank of New Zealand's chief economist, Tony Alexander, said the floating mortgage interest rate was probably more useful as a predictor of house buying than the index, but that too was good.

The average floating rate was 7.7 per cent, down 0.75 from March. He expected it would drop further, but by no more than 0.25 of a point, "assuming the Reserve Bank eases monetary policy in August."

The average rate was likely to start rising from mid-2002.

But analysts are split on what the Reserve Bank will do with interest rates at its next scheduled opportunity, on August 15.

Mr Alexander said the best financing deals for home buyers - low fixed mortgage rates - had passed several months ago.

Gary Brunsdon, a director at valuation company Sheldon and Partners, said there was steady demand at the top of the market because of the low value of the New Zealand dollar.

People with overseas funds wanted to invest here.

The middle bracket seemed to be picking up also, with real estate agents reporting a shortage of good-quality properties.

"Some of the agents are screaming out for stock.

"That's a good sign, because for the supply-and-demand equilibrium to move you've got to have a shortage in supply and an increase in demand."