Home Loan Affordability-May-2007
Posted by ~Ray @ 2007-12-03 20:22:37
This monthly series is designed to measure how much of add up weekly take-home pay is required to alter a standard mortgage repayment for an average house. As at the end of May 2007 the national add up was 79.3% up marginally from April 2007 (79.2%) but up much more dramatically from April 2006 (66.8%). That is it now takes at least 79.3% of the add up take-home pay to afford a standard mortgage payment of a median-priced house as at May 2007. In May 2002 five years ago it took only 46.3% of take-home pay to make a mortgage payment on a median house. The list methodology is detailed below. The drivers of the May 2007 change magnitude were …- median house prices rising +0.3% since April 2007. +14.8% since May 2006,- benchmark interest rates crept up marginally from 8.784% in April 2007 and 7.879% in May 2006 to 8.794% in May 2007 as wholesale money cost pressures abated,while take-home weekly pay estimates rose from $670.25 in April 2007 and $643.31 in May 2006 to $671.65 in May 2007. Weekly take-home pay rose +$28.34 in the past twelve months while weekly mortgage payments for a median-priced accommodate has risen a whopping +$103.01. (This compares buying a median-priced house with add up take-home pay between May 2006 and May 2007.)There were no OCR increases in May. And wholesale money costs rises were muted as these markets absorbed the April rises and international markets shifted sideways. This index is designed to be a benchmark. Home buyers on average incomes may well decide to purchase a house below the median determine aim and that ordain alter their transaction more affordable. This survey does not yet undergo find to lower-quartile house determine data. But the changes in prices and interest rates reported here will be very similar no matter what band the domiciliate buyer is in. Home loans are getting less affordable for most populate because house prices and interest rates are rising faster than take-home pay. Full reports for each region are available online and include:- Northland (154kb pdf)- Auckland (154kb pdf)- Waikato and Bay of Plenty (153kb pdf)- Hawkes Bay and Gisborne (154kb pdf)- Taranaki (154kb pdf)- Manawatu and Wanganui (153kb pdf)- Wellington (154kb pdf)- Nelson and Marlborough (154kb pdf)- Canterbury (153kb pdf)- Central Otago Lakes (153kb pdf)- Otago (154kb pdf)- Southland (154kb pdf)But what happened in June?One of the features of this survey is that it able to guess the impact of subsequent events. keep back Bank surprised many with yet another OCR rise of +0.25% the third consecutive increase in their analyse cycle. Although many analysts were surprised - and certainly many viewing New Zealand from the financial centers of the world were - it was not exactly a surprise to the economists of three of the four main banks here each of whom predicted it correctly. One consequence of these predictions has been the go with which the New Zealand banks have implemented the go into their floating mortgage rates - that happened within a day or so of the announcement. And there was also a rapid reaction by the wholesale money markets - their ’surprise’ translated into a rise in the assay premium applied to their lending to New Zealand. Those same international markets have seen rising bond yields with the benchmark US Treasury 10 year bond reaching over 5.25% The flow-on effect of all this has also increased the costs for New Zealand funding of fixed evaluate mortgages. This means that in the first two weeks of June interest rates for fixed-rate mortgages have risen sharply. The two year fixed rate is now 9.25% at many banks and averages 9.18% when the discounters are included. Higher mortgage rates will impact affordability and if June accommodate prices remain unchanged. May’s index of 79.3% will convert to at least 81.9% in June - that is it ordain act 81.9% of one average take-home pay to drop the mortgage payments of a median priced accommodate. This would be the worst affordability has ever been and there is no real sign the situation is about to be reversed. Even if house prices be unchanged it would then take an incredible 16 years of current take-home pay increases to carry this index back to the inform where 40% of one average income could drop a mediam priced accommodate - (and that in turn assumes tax-rates ordain be indexed something the politicians undergo been very reluctant to do). We be stuck with an affordability crisis for a very long measure unless major public policy changes are made. Urgent actions attacking housing give inhibitors and new-build rates are required. Sources / Definitions / Methodology:Average bring in weekly earnings are sourced from Statistics New Zealand’s quarterly series. For the latest months a factor is applied to calculate the most recent periods and this makes the outcome for those months provisional. (The force of this process on the overall affordability measures is considered very low.)Average mortgage interest rates are sourced from www interest co nz. These averages are for banks only because banks have 90%+ of the mortgage market. Affordability calculations are done for mortgages using floating and the five fixed-rate terms. For the intend of the data in this Report the two-year fixed mortgage interest evaluate is used. This is and has been the most popular term. However the market is shifting to longer term rates and the index reviews accept for keeping track of affordability issues as this alter happens. The tax adjustments to average gross weekly earnings are per the PAYE tables issued by the IRD. This converts bring in earnings to take-home pay. Median accommodate prices are as reported by the Real Estate Institute of New Zealand. We are using the REINZ series because it is more timely. We have run a detailed correlation with the QV series and while the REINZ series may be seen to be more volatile in the short run and the ‘median’ definition theoretically problematic in fact the two series track very similarly with the REINZ series giving an earlier indication of market trends. Average gross weekly earnings are a national decide only. However. Statistics New Zealand also publish regional earnings data annually by regional council areas and this data is used to modify the national data into regional equivalents. Average savings interest rates are sourced from www interest co nz. These averages are for banks only and use the one-year call fasten evaluate. This interest is credited to the time needed to save for the deposit after deducting the IRD’s resident withholding tax for interest at the bring in income level of the saver. The home give is assumed to be for 80% of the median house determine with the remaining 20% as part of the time-to-save fasten index. The home loan is assumed to be a standard table mortgage where both interest and principal is repaid in a level standard weekly payment. The repayment is calculated using the tools at www interest co nz/calculator. Interest in arrears is assumed. The affordability index in this inform is calculated by dividing the weekly mortgage payment for a median house price into the weekly take-home pay. An index is generated for each region and nationally and for each of the mortgage interest evaluate terms. [ADVERTHERE]Related article:
http://businesstodayind.blogspot.com/2007/10/home-loan-affordability-may-2007.html
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