Interest, price rises hit home
Palmerston North house-hunters are continuing to feel the pain, as ever-increasing prices and recently raised interest rates take properties further out of reach - and things are likely to get worse.
The latest Roost home-loan affordability report says it would take 44.2 per cent of the average income of a person in the 25-29 age group to pay the mortgage on the average Palmerston North house.
That compares to 40.4 per cent last month and 40.3 per cent from a year ago.
Anything over 40 per cent is considered unaffordable.
According to the report, the rise in unaffordability has two main drivers: house prices and interest rates.
The median house price in March was $306,250 - the first time Palmerston North's median price cracked $300,000 since the October 2007 record of $315,000 - putting annual price growth at 9.6 per cent.
Palmerston North's annual price growth was 1 percentage point faster than national growth.
The rise in median price was because of fewer properties being sold for less than $300,000.
In March last year, about 63 per cent of properties sold for under $300,000 and 85 per cent sold for under $400,000.
Last month, 49 per cent of properties sold for under $300,000 and 72 per cent for less than $400,000.
Interest rate increases in March also had a part to play in increasing unaffordability, the report said.
The average bank interest rate for a floating mortgage was 25 basis points higher than a year ago at 6.01 per cent. The increase came after the Reserve Bank pushed the official cash rate up in March.
Economists are picking the OCR to continue rising, which will push interest rates higher.
The report said that would affect the housing market.
"The Reserve Bank said it is on track to raise the OCR by about 2 per cent over the next two years.
"When that is done, it will have had a substantial and negative impact on affordability.
"Wholesale interest rates are continuing to rise also and borrowers should check their options to switch to a fixed rate."