By Greg Ninness

Housing affordability is improving for first home buyers in most parts of the country but the improvements are so small most aspiring first home buyers probably wouldn't notice the difference, according to interest.co.nz's latest Home Loan Affordability Reports.

The reports track movements in dwelling prices, mortgage interest rates and incomes in 41 locations around the country to see how much of a typical first home buying couple's weekly income would be eaten up by the mortgage payments on a lower quartile-priced home in each area.

Nationally house prices appear to have been relatively stable since the end of summer, with the REINZ's lower quartile selling price staying within a very narrow band between $375,000 and $381,000 since March.

But while lower quartile prices have been more or less flat, mortgage interest rates have been steadily declining, with the average of the two year fixed rates offered by the major banks dropping from 4.84% in February last year to 4.63% in July this year.

And incomes have been slowly rising.

Interest.co.nz estimates the national median take home pay of typical first home buying couples (both aged 25-29 and working full time at the median pay rate for their age group) would have increased from $1598.89 a week (after tax) in March, to $1610.48 in July.

Over the same period, the REINZ's national lower quartile selling price declined marginally from $381,000 in March, which was a record high, to $377,707 in July, while the average two year fixed mortgage rate also fell from 4.67% in March to 4.63% in July.

That meant that the amount that would need to be set aside each week for the mortgage payments on a lower quartile-priced home would have dropped from $366.66 in March to $360.20 in July.

When that's combined with the small lift in incomes it would make typical first home buyers better off by $18.05 a week in July compared to March, and the proportion of their net pay that would be eaten up by mortgage payments would have dropped from 22.93% to 22.37% over the same period.

While the improvement in affordability is relatively small, it is at least a step in the right direction and the trend is evident in most parts of the country.

The end of a sustained period of rapid price growth and worsening affordability?

The flattening of house prices that has occurred appears to mark the end of a sustained period of rapid price growth and worsening affordability, with the REINZ's national lower quartile house price increasing by 39.9% over the last five years, from $270,000 In July 2013 to $377,707 in July this year.

Interest.co.nz estimates the average take home pay for typical first home buying couples increased by just 10.1% over the same period, from $1462.95 in July 2013 to $1610.48 in July this year, which meant lower quartile prices increased at four time the rate of typical first home buyers' take home pay.

However the effects were moderated by declining mortgage interest rates with the average two year fixed rate declining from 5.64% in July 2013 to 4.63% in July this year.

Taking all of those factors into account, the amount of their weekly income that typical first home buyers would need to set aside for the mortgage payments on a lower quartile-priced house has increased from 19.63% in July 2013 to 22.37% in July this year, still well below the 40% threshold at which housing is considered unaffordable.

That means that overall, housing in this country is still considered affordable for first home buyers and by a substantial margin.

The two big exceptions to that are the Auckland Region and Queenstown.

In Queenstown the REINZ's lower quartile price hit a record high of $807,500 in July, making it easily the most expensive place in the country for first home buyers.

That means the mortgage payments on a lower quartile-priced home in the town would eat up 57.15% of the net pay of typical first home buyers hoping to buy there, which would likely put home ownership well out of reach for most of them.

Most of the rapid escalation of lower quartile prices in Queenstown has occurred in the last three years.

In the Auckland Region, the lower quartile selling price has risen astronomically over the last five years, from $385,000 in July 2013 to 660,000 in July 2018 (+71%).

But most of that growth occurred between 2013 and 2016, and the the lower quartile price in the region has been more or less flat for the last two years.

The fact that lower quartile prices have stopped increasing in Auckland and interest rates have been falling has helped first home buyers, with affordability in the region slowly improving for most of this year.

However Papakura (lower quartile price $608,000) and Franklin (lower quartile price $537,500) on Auckland's southern flank are the only districts within the Auckland region where house prices are low enough for them to be considered affordable for typical first home buyers.