House Prices Remain Stagnant as Interest Rates Rise

The Real Estate Institute of New Zealand (REINZ) has found that interest rates and incomes are now the main drivers of changes in housing affordability for first home buyers, as house prices at the bottom of the market remain stagnant.

The REINZ's national lower quartile selling price was $585,000 in June this year, back to almost exactly where it was five years ago. This represents a peak-to-trough decline of over 15% during the debt-fuelled price boom engineered by the Reserve Bank and fuelled by the trading banks.

The average two-year fixed mortgage rate has increased from 4.49% in November last year to 5.26% in June this year, pushing mortgage payments on a home purchased at the national lower quartile selling price up from around $741 a week to $764 over that period, assuming it was purchased with a 10% deposit.

While interest rates are rising, household incomes have also increased, offsetting some of the impact on affordability. The combined after-tax pay of a couple working full time at the median rates of pay for people aged 25-29 would have increased from $2170 a week to $2189 over the same period.