News & Research

Interest rate hikes wipe out housing affordability gains

Housing has become more affordable on some measures, but due to continued rate rises, mortgage repayments are still eating up a big chunk of people’s income, according to the latest CoreLogic Housing Affordability Report.

In fact, Kiwis are spending more than half of their income (53%) on mortgage repayments to service an 80% LVR mortgage.

CoreLogic NZ Chief Property Economist Kelvin Davidson said this shows affordability remains significantly stretched.

“The percentage of income required to service a mortgage has shot back up from 50% in quarter three last year, matching the previous peak in quarter two last year and well above the long-term average of 38%.

“The falls in property values that we’ve seen in recent months will in part have helped the required debt servicing costs for a home-buyer, alongside higher incomes, but these effects have been outweighed by the rise in mortgage rates themselves,” Mr Davidson said.

“In other words, this measure is signalling that housing is still as unaffordable as ever,” Mr Davidson said.

However, Mr Davidson said the pressure could start to come off homeowners over the next three to six months, if mortgage rates flatten, house prices continue to fall and wages rise.

“That would mean affordability as measured by mortgage repayments as % of income should start to improve,” he said.

House price to income

Properties in New Zealand are now valued at 7.8 times the average household income.

This is well above the long-term average of 6.0, but it has fallen in recent months as property values have dipped and incomes have continued to rise.

“The latest figure of 7.8 is well down on the peak of 8.8 seen during the first quarter of last year. While it’s still stretched, it’s reassuring to see affordability on this measure has started to improve steadily,” Mr Davidson said.

The most affordable region

Wellington City has overtaken Christchurch as the country’s most affordable main centre on the home value to income ratio.

A sharp decline in house prices in the capital (-18% from the peak) has taken affordability back fairly close to pre-Covid levels on most measures.

“Incomes have been rising steadily in both markets, but with Wellington recording larger falls in home prices than Christchurch, the balance of affordability has shifted more significantly,” Mr Davidson said.

The path to home ownership

The amount of time it takes to save a deposit is still high – 10.4 years – but down from the worst point of 11.8 in the first three months of last year.

“Saving the typical deposit is still a hurdle for would-be first home buyers, but the wider housing downturn has started to make this appreciably easier than it was about 12-18 months ago,” Mr Davidson said.

Tauranga has the longest period of time required to save a deposit of any of the main centres, at 13.7 years, well above its long-term average of 10.8 years, and the national figure of 10.4 years. However, it has started to improve, having peaked at 15.9 years in Q1 2022.

Rental outlook

It’s emerging good news for tenants who are saving for their first property.

“Rents currently absorb 22% of household income nationally, but this has stopped rising as rents have flattened off and incomes have risen, with a further improvement probably in the pipeline in the coming months too,” Mr Davidson said.

However, this could be little consolation if we see unemployment begin to tick up, Mr Davidson warned.

Improving outlook

A flattening off of mortgage rates, coupled with further house price falls and continued income growth could offer some respite for borrowers in the future.

“It’s fair to suggest that the worst has passed in this cycle for housing affordability, and as mortgage rates peak, the next few quarters (at least) should look more favourable for home buyers,” Mr Davidson said.

Download the latest CoreLogic Housing Affordability Report


CoreLogic New Zealand

CoreLogic New Zealand

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