High interest rates wiping out housing affordability gains - CoreLogic

While housing has become more affordable on some measures, mortgage repayments are still eating up a large chunk of people's incomes as interest rates continue to rise.

The latest CoreLogic Housing Affordability Report found that Kiwis are spending 53 percent of their income on mortgage repayments to service an 80 percent loan-to-value ratio (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 percent in quarter three last year, matching the previous peak in quarter two last year and well above the long-term average of 38 percent," he said.

"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.

"In other words, this measure is signalling that housing is still as unaffordable as ever."

Although 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 percent of income should start to improve."

House price to income

CoreLogic said properties in New Zealand are now valued at 7.8 times the average household income. They said 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," 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, CoreLogic said.

A sharp decline in house prices in the capital (-18 percent from the peak) has taken affordability back 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," Davidson said.

High interest rates wiping out housing affordability gains - CoreLogic
Photo credit: CoreLogic

The path to home ownership

CoreLogic said the amount of time it takes to save a deposit is sitting at 10.4 years, but this is 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," Davidson said.

Tauranga has the longest period of time required to save a deposit of any of the main centres, at 13.7 years, which is 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 the first quarter of 2022. 

Rental outlook

But there is good news for tenants who are saving for their first property.

"Rents currently absorb 22 percent 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," Davidson said.

However, this could be little consolation if we see unemployment begin to tick up, he added.