Central Otago has had one of the largest improvements in the country for housing affordability, as the entire country lines up to offer buyers the best prices in four years.
However, actual affordability remains beyond the reach of most home buyers and in a new twist amidst falling interest rates, credit rationing by banks and bigger deposit requirements are also affecting people's ability to buy homes.
The affordability survey is set at spending 40% of an after-tax pay-packet on mortgage repayments. Above 40% is unaffordable.
At present rates of improvement, housing is likely to be broadly affordable again for most home buyers towards the end of 2009, according to Bernard Hickey, the editor of the monthly Home Loan Affordability report which appears on financial information website www.interest.co.nz.
"However, one new hurdle for home buyers is that mortgages with low interest rates will not be as freely available as they were through 2003 and 2004, when affordability was back below the 40% threshold," he said in a statement yesterday.
Rationing of credit by banks, and demands for higher deposits, may constrain a rebound of any housing market volumes and prices, keeping affordable housing out of the reach of buyers with only small deposits, Mr Hickey said.
ASB chief economist Nick Tuffley said house prices were expected to be down 7%-10% overall for 2008; the period of largest correction, while he forecast a 4% downturn this year.
"From peak to trough over about two years about 15% has gone off house prices," he said.
He believed affordability would continue to improve this year as prices continued to fall before the market hit the bottom of this cycle, he said.
The biggest improvements in affordability of all 12 regions surveyed (and all showed improvements) were in the Central Otago/Queenstown Lakes and Nelson/Marlborough regions, where median house prices fell respectively 10% and 11%, but only Southland is below the actual "affordable" 40% threshold.
Central Otago/Queens-town Lakes overall affordability went down to 83%, based on a single income.
"Lower quartile housing is affordable for families in Central Otago when both adults work," Mr Hickey said.
The affordability for couples was 43% in November and 39.9% for December. Mr Hickey said Southland continued to be most affordable, with the typical home buyer having to pay 33% of take-home pay to afford the mortgage on a median house, down from 34.2% in November and 49.3% a year ago.
However, Southland is still the only region where affordability levels are under the 40% thres-hold.
Mr Hickey said the improvement in December was driven largely by lower interest rates in the wake of the Reserve Bank's 150 basis point cut in the interest-driving official cash rate to 5%, on December 4.
A 3% fall in the median house price, to $328,500, added to the improvement created by a 41 basis point fall in the average two-year fixed mortgage rate, to 7.07%, he said.
The proportion of an after-tax median income needed to service the mortgage for the median house price fell to 59.6% in December from 63.8% in November.
This was the first improvement to below 60% for a typical home buyer since January 2005.
It was well below the record worst level of 82.9% in November 2007.
The Reserve Bank is expected to cut the OCR a further 100 basis points to 4% next Thursday.
Mr Hickey said economists expect further cuts through the first half of 2009, to a low of 3% to 3.5%.
"That creates the potential for variable mortgage rates to fall to 5.5% to 6%," Mr Hickey said.
