New Zealand Houses Should be Affordable This Year

The pundits at interest.co.nz are predicting that New Zealand’s houses will be officially affordable for median income earners by later in 2009.

The perfect storm has occurred in New Zealand – the official cash rate is at a historic low of 3.5% with many economists predicting that it will go lower again when its next reviewed on March 12. This has seen floating mortgage rate drop to 6.4% – rates not seen since the start of the housing boom in 2002.

Housing prices are still dropping – but nothing as dramatic as in the US. Nationally house values dropped 8.5% which ranged from the worst result in Rotorua of 11.9% to the “best” result of New Plymouth of 5.5% drop.

Affordability is measured as the percentage of a median after tax pay required to service an 80% mortgage on a median house. At its worst in November 2007 affordability was at 82.9% when house prices were at their highest. In January affordability fell to 54.1% dropping 5.7% from the December – the biggest drop ever.

In fact a young couple buying a cheaper home – houses are already affordable – or as the economists like to put it:

first-home-buyer household (one full time male aged 25-29 and one full time female aged 25-29 with no kids) buying the first quartile home shows an improvement to 22.0% from 24.7%. We think that this is now affordable, being below the 30% threshold.

So long as people reign in their expectations and forget about the mansion in the desirable suburb they can have mortgage which is only 22% of a couple’s income – that is cheaper than renting in most cases.

And yes that couple probably will have jobs. Although unemployment is at a 5-year high – though at 4.6% most other countries would kill to have such a low rate. Note to that this is a real rate of a everyone who is entitled to unemployment benefits – which are not time limited in New Zealand.

Instead look at some of the bargains that can be had – this handyman’s delight it the quaintly named Nightcaps in Southland is a 3-bedroom 120 sqm home on a 1000sqm sub-dividable block. OK it needs a LOT of work but the wiring is done and a lot of materials including a set of replacement windows are included in the asking price of $34,500!

New Zealand's Cheapest House - $34,500 - including freehold land

Things are looking surprisingly good for a small country of 4 million people just about as far away from its markets as you can get.  For overseas investors its looking pretty good to – the NZ dollar is now at US$0.50 – you will get a great deal for your buck!