Interest rates offset more affordable house prices

[muppet]

Interest rates offset more affordable house prices
5:00AM Monday February 25, 2008

A fall in house prices helped improve home loan affordability overall last month but higher interest rates wiped out most of the gains, according to a monthly home-loan affordability report.

Affordability for first-home buyers also improved slightly, but remained near its worst levels.

Affordability improved in Auckland, Wellington, Hamilton and Christchurch, but worsened substantially in Southland and the central Otago region that includes Queenstown because of higher house prices.

It now takes 80.8 per cent of take-home pay from a median income to pay the mortgage on a median-priced house bought last month, down from December's 81.9 per cent.

But this is up from 71.9 per cent a year ago and 44.1 per cent five years ago. Any figure over 40 per cent is seen as unaffordable for one income.

The biggest influence was a rise in the average two-year fixed-rate mortgage to 9.508 per cent from 9.343 per cent, which meant the mortgage payment on a loan for 80 per cent of the median house price was stable at $548.36 a week, even though it fell 1.4 per cent last month. Interest rates have risen from 8.199 per cent a year ago as the effects of Reserve Bank monetary policy tightening and turmoil on global credit markets flow through to higher wholesale interest rates.

Central Otago is again the most unaffordable, with mortgage costs equalling 122.7 per cent of the median income in the region, up from 108 per cent in December because of a rise in the median house price to $476,000.

Affordability in Southland also plunged, with mortgage payments on a median house leaping to a record 59 per cent of the median income. The median house price rose to $225,000.

The Fairfax Media report said affordability improved the most in Auckland, where prices fell the most.

The proportion of take-home pay needed to service a mortgage on the median house fell to 95.5 per cent from 101.4.

- NZPA

http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10494335

[McDuck]

Ha! now that's a catch 22 situation.

When the house prices drop even more, the next round of buyers can borrow less, and therefore pay less interest, even at a higher rate.

And as wages go up, they will be able to pay off more , and therefore pay even less on interest.

The interest rates need to go up another percent to really make houses more affordable.

it sounds backwards I know...but such is the supply and demand of money versus housing.

[67910241]

For futureproofing your "investment"

Ha! now that's a catch 22 situation.

When the house prices drop even more, the next round of buyers can borrow less, and therefore pay less interest, even at a higher rate.

And as wages go up, they will be able to pay off more , and therefore pay even less on interest.

The interest rates need to go up another percent to really make houses more affordable.

it sounds backwards I know...but such is the supply and demand of money versus housing.

There's absolutely no contest between low prices and low interest rates. Affordability can't be determined on the current situation alone. I'll just repeat what I've heard repeated a million times on the US real estate boards: give me a high interest rate over a high purchase price anytime! A no brainer - the first one can always go down later on, the other always stays with you for a long time...

[Glenis]

It now takes 80.8 per cent of take-home pay from a median income to pay the mortgage on a median-priced house bought last month, down from December's 81.9 per cent.

But this is up from 71.9 per cent a year ago and 44.1 per cent five years ago. Any figure over 40 per cent is seen as unaffordable for one income.

So that would make 80.8% almost unaffordable on 2 incomes? When i dished out mortgage money about 25 years ago the rule was 25% of income - I guess that means we're better off because we can pay more

[McDuck]

That 25% was a good figure, it weeded out the people with no staying power.

[Halfway To Paradise]

So that would make 80.8% almost unaffordable on 2 incomes? When i dished out mortgage money about 25 years ago the rule was 25% of income - I guess that means we're better off because we can pay more

I have not heard this mentioned before, but I have a theory how house prices have continued to rise even though they are unaffordable. I think the black economy in NZ is much bigger then anyone cares to admit. Just look at the amount of new stuff being traded on TradeMe. Almost 2 million registered users with over 1 million items listed. That must equate to someone in every household being registered.

I can see the day when the IRD tax return form has a specific section for declaration of earnings from TradeMe.

Rob

[Glenis]

Hi Rob we have 3 trademe accounts in our house. Mine is a business one - totally legit and I pay all the appropriate taxes. What keeps you honest is that almost all payments go straight to a bank account and that's a bit hard to hide. No point setting up new TM accounts all the time to hide it because people like dealing with someone with a good record. You'd be surprised how many people have million dollar businesses on trade me - all legit.

There is only so much you can sell before the IRD comes knocking, and rightly so. You get caught at customs or NZ Post when your stuff comes in. It's simply not worth the aggravation, better to be up front and pay what you should - there's plenty of stuff you can write-off or claim as a business so why bother with looking over your shoulder all the time.

[McDuck]

So that would make 80.8% almost unaffordable on 2 incomes? When i dished out mortgage money about 25 years ago the rule was 25% of income - I guess that means we're better off because we can pay more

Lol...no...I think it's 80% on one income....
The trick here is to have two working adults.
with one wage paying off the Mortage, and the other wage paying for food etc....

so if the average wage is 35K,
the dual income is 70K.

Almost all of the 35k goes to housing.
thats about 600 dollars a week to spend on housing alone.

That gets you a pretty big loan.