HOME AFFORDABILITY REPORT QUARTERLY SURVEY DECEMBER 2014, VOLUME 24, NUMBER 4 DETERIORATION IN AFFORDABILITY GAINS MOMENTUM The all districts national affordability index is now 14.1% worse than the same time last year and almost three-quarters of that change (10.2%) has occurred in the last three months. The average weekly wage increase in the past year has been $19.35 but this has been more than offset by an uplift in average mortgage interest rates from 5.51% to 5.97%, coupled with the national median house price rising over the year by more than $30,000. This national picture permeates down to all regions. In some, the annual worsening in the affordability index has stayed at single figures – Wellington (7.6%), Taranaki (7.1%), Nelson/Marlborough (5.5%), and Southland (7.5%). In all other regions, however, we are into double figures: Manawatu/Wanganui (18.8%), Auckland and Hawkes Bay (both 16.4%), Central Otago/Lakes (15.4%), Waikato (13%), Canterbury (12%), Otago (11.5%) and Northland (10.5%). Auckland again tops the list of least affordable regions, with its index level rising marginally to 40% above that for the whole country. Steep house price rises during the last quarter in Central Otago/Lakes now put it (39% above) alongside Auckland. All other regions are more affordable than the national average, ranging from Canterbury (5% below), Nelson/Marlborough and Waikato (both 13% below) through to Manawatu/Whanganui (42% below) and Southland (54% below). Lying in between (all figures below the national average) are Otago (39%), Taranaki (36%), Hawkes Bay (32%), Northland (21%) and Wellington (16%). Looking over the whole of the past year, the deterioration in the national index has been driven in roughly equal measure by rising prices and increased borrowing rates. Most recently, however, hikes in prices have dominated, with approximately 85% of the change in the national index during the last quarter being due to this. A virtually identical set of events has occurred in the country’s largest market, Auckland. While Auckland’s affordability score still remains below the peaks of 2007/2008, its current trajectory suggests it may soon return or exceed those levels. This can be seen in the Major Cities chart. Even without further price rises – which no-one is predicting – a one percentage point rise in interest rates, without substantial wage increases, would put the Auckland index on a par with 2007/2008 levels. A rise in house prices of 10%, with wages rising at the same pace as last year and no interest rate increases, would push it close to those peaks. If this latter situation were combined with a modest half-point rise in borrowing rates, the index would be propelled into what, for Auckland’s recent record of affordability, would be uncharted territory. KEY POINTS • Annual deterioration in National affordability of 14.1% • Quarterly deterioration in National affordability of 10.2% • Affordability projected to continue to deteriorate into 2015 • Rate of deterioration in Auckland affordability quickens pace in most recent quarter. REGIONAL AFFORDABILITY AS A PERCENTAGE OF NATIONAL AVERAGE Region 79% 140% 87% 64% 68% 58% 87% 95% 139% 46% 61% 84% PERCENTAGE CHANGE IN HOME AFFORDABILITY IN THE LAST 12 MONTHS HOME AFFORDABILITY INDEX Aug 2014 Nov 2014 improvement decline Northland 18.0 19.7 - 10.5% Auckland 31.4 34.8 - 16.4% Waikato/Bay of Plenty 19.5 21.6 - 13.0% Hawke’s Bay 16.9 17.0 - 16.4% Taranaki 13.9 15.9 - 7.1% Manawatu/Wanganui 13.2 14.5 - 18.8% Wellington 19.4 21.0 - 7.6% Nelson/Marlborough 21.2 21.6 - 5.5% Canterbury/Westland 22.4 23.7 - 12.0% Otago 14.9 15.2 - 11.5% Central Otago Lakes 27.0 34.7 - 15.4% Southland 11.6 11.6 - 7.5% New Zealand 22.6 24.9 - 14.1% NATIONAL HOME AFFORDABILITY INDEX (A LOW INDEX EQUALS IMPROVED AFFORDABILITY) Further details on affordability and the methodology used in this survey are reported on the following pages. 38 34 38 34 34 30 30 30 26 26 26 22 22 22 18 18 18 14 14 14 10 10 Nov-13 Feb-14 May-14 Aug-14 Northland Northland Nov 13 - Nov 14 Nov-14 Nov-13 Feb-14 May-14 Aug-14 Nov-14 10 Nov-13 Auckland Auckland Nov 13 - Nov 14 34 34 34 30 30 30 26 26 26 22 22 22 18 18 18 14 14 14 10 10 Feb-14 May-14 Aug-14 Nov-14 Nov-13 Feb-14 May-14 Aug-14 Nov-14 10 Nov-13 Taranaki Hawkes Bay Hawkes Bay Nov 13 - Nov 14 26 22 22 18 18 18 14 14 Feb-14 May-14 Aug-14 Nov-14 10 10 Nov-13 Wellington Nov 13 - Nov 14 Feb-14 May-14 Aug-14 Nov-14 Nelson Nelson Nov 13 - Nov 14 38 34 34 34 30 30 30 26 26 26 22 22 22 18 18 18 14 14 Feb-14 May-14 Aug-14 Otago Otago Nov 13 - Nov 14 Nov-14 10 Feb-14 May-14 Aug-14 Nov-14 Canterbury/Westland Nov 13 - Nov 14 38 Nov-13 Nov-13 Canterbury / Westland 38 10 Nov-14 22 Wellington Aug-14 26 26 10 Nov-13 May-14 30 30 14 Feb-14 34 34 30 Nov-14 38 38 34 Aug-14 Manawatu / Wanganui Manawatu/Wanganui Nov 13 - Nov 14 Taranaki Nov 13 - Nov 14 38 May-14 38 38 Nov-13 Feb-14 Waikato/Bay Plenty Waikato/Bay ofofPlenty Nov 13 - Nov 14 38 38 14 10 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Nov-13 Otago Lakes CentralCentral Otago Lakes Nov 13 - Nov 14 Feb-14 May-14 Aug-14 Nov-14 Southland Southland Nov 13 - Nov 14 38 34 30 REGIONAL AFFORDABILITY INDEX 26 22 18 14 10 Nov-13 Feb-14 May-14 Aug-14 New Zealand New Zealand Nov 13 - Nov 14 Nov-14 DATA SOURCES The average weekly earnings and mortgage interest rate figures are drawn from Statistics New Zealand and Reserve Bank data. Housing prices are released by the Real Estate Institute of New Zealand (REINZ). The combination of this data provides the opportunity to calculate a reliable and useful summary index. The lower the index the more affordable the housing. The index allows for comparisons over time and between regions of relative housing affordability in New Zealand. TERMINOLOGY Housing affordability for housing in New Zealand can be assessed by comparing the average weekly earnings with the median dwelling price and the mortgage interest rate. The earnings figure represents the money available to the family, or household unit, and the median dwelling price combined with the mortgage interest rates provide an indicator of the expense involved. Prepared by Paul Gallimore & Fong Mee Chin School of Economics and Finance Massey University ENQUIRIES MAY BE ADDRESSED TO: Sidah Russell Communications and Marketing Massey University Phone: (09) 4140800 Ext 9421 Email: S.Russell@massey.ac.nz Website www.masseynews.massey.ac.nz MEDIAN DWELLING PRICES Median dwelling prices for various regions within New Zealand are released monthly by the REINZ. The figures are obtained from a survey of member agencies’ sales during that specific month. There may be irregularities in the data resulting from errors in the returns or processing, but when individual returns are combined with those of other agencies the distortion is likely to be small. In some months there may be very few transactions and this can result in somewhat non-representative median prices. The REINZ continues to research ways of improving the quality of the data. The research, and other continuing action by the REINZ to monitor and improve data quality, should minimise data errors. AVERAGE WEEKLY EARNINGS Average national and regional weekly earnings data is provided directly by Statistics New Zealand. AVERAGE MONTHLY INTEREST RATES The Reserve Bank publishes a range of data on mortgage interest rates. The Reserve Bank series selected for the affordability index is based on end of month floating and fixed rates for existing borrowers. Weighted by volume, loan type and term from each lending institution, the rate used is effectively the weighted average interest rate earned by lenders (and paid by borrowers) for more than 90 per cent of the residential mortgage market. This mortgage rate provides an indication of the interest which is payable on new mortgages entered into in the quarter under consideration. While there are various levels, as a percentage of the house price which a mortgage may represent, in general most new home buyers are up to the maximum percentage of approximately 80 percent. MASSEY UNIVERSITY PROPERTY FOUNDATION The Foundation is established to sponsor research and education in property related matters in New Zealand. Funding is obtained through sponsorship from corporations and firms within the property industry. The Foundation has established a Real Estate Analysis Unit which operates out of Massey University’s Albany campus. The Foundation works closely with the Property Studies Group at MasseyUniversity. SCHOOL OF ECONOMICS AND FINANCE MASSEY UNIVERSITY MasseyUniversity has three campuses, located in Palmerston North, Wellington and Auckland, in New Zealand. The University has an enrolment of 33,000 students with approximately 13,000 business students. There are five schools within the Massey Business School. Professor Paul Gallimore directs the Massey University Real Estate Analysis Unit (MUREAU). IMPORTANT DISCLAIMER No person should rely on the contents of this report without first obtaining advice from a qualified professional person. This report is made available on the terms and understanding that MasseyUniversity and the authors of this report are not responsible for the results of any actions taken on the basis of information in this report, nor for any error in or omission from this report.