Kiwis are spending half their household income on their mortgage payments, the latest CoreLogic Housing Affordability report shows.
The report, which was released on Tuesday, noted while housing affordability has been improving due to property prices falling, incomes rising and interest rates stabilising, Kiwis are still shelling out huge amounts of cash for their mortgages.
Mortgage repayments as a percentage of gross annual average household income dropped from its peak of 53 percent in the last quarter of 2022 to 49 percent last quarter but is well above the long-term average of 38 percent.
CoreLogic NZ Chief Property Economist Kelvin Davidson said it's a testing situation for new buyers and relief isn't expected any time soon.
"Even after the recent improvements, almost half of a household's income being eaten up by interest repayments is relatively unaffordable compared to long-term averages," Davidson said.
"Although lower mortgage rates seem likely over a one to two-year horizon, we're not expecting any relief via rate cuts in the immediate to short-term.
"Given the uneasy prospect that property values may start rising, albeit gradually, once again as we're already starting to see in a couple of regions, this will only add to the strain on new home buyers, at least until interest rates start to come back down."
While incomes are rising, Davidson said that will only partially offset the cost of paying a mortgage.
Each of the main centres still has mortgage repayments as a percentage of gross household income at least eight percentage points higher than their own long-term averages, with Tauranga the most stretched and Wellington the least.
Value to income ratio continues to improve
Despite high mortgage costs the value to income ratio of properties in Aotearoa is improving. Properties are now valued at 7.2 times the average household income, down from 7.8 six months ago.
Davidson said the figure has fallen in recent months as house prices dipped and incomes increased due to a strong labour market. But he said the 7.2 rate is still much higher than the long-term average of 6.1.
"The latest figure of 7.2 is significantly lower than Q1 2022's peak of 8.8 and is the lowest since 7.1 in Q4 2020. In other words, a lot of the strain that emerged post-COVID has been easing but remains elevated by longer-term historical levels," he said.
Tauranga remains the least affordable main centre, with a value-to-income ratio of 9.5 in the second quarter of this year, followed by Auckland, Dunedin, Hamilton, Christchurch and Wellington.
"After a period of very stretched affordability, the sharp falls in Wellington City house prices lately have seen this part of the country get markedly better in terms of purchasing power and it retains the title of most affordable from Christchurch for the second consecutive report," Davidson said.
Years to save a deposit reducing
The average number of years it takes for New Zealanders to save for a deposit is also falling, now sitting at 9.6 which is still well above the long-term average of 8.1 but two years better than the worst reading seen at the start of 2022 which was a whopping 11.7 years. The latest figure is the lowest since the end of 2020.
Tauranga has the longest period of time required to save a deposit of any of the main centres, at 12.6 years, well above its long-term average of 10.8 years, and the national figure. But it has started to improve, having peaked at 15.8 years in the first quarter of 2022.
Rental affordability relatively unchanged
While housing affordability is improving, rental affordability is relatively unchanged with increasing incomes generally being offset by rent increases.
Davidson said nationally average households currently spend about 22 percent of their income on rent - slightly above average, but not much different from where it's been for the past few years.
"The market that stands out is probably Christchurch, which has long been regarded as New Zealand's most favourable main centre for housing affordability, both in terms of buying and renting, but this no longer applies to the same extent. Indeed, it's now relatively more expensive to rent in Christchurch than Wellington, Auckland, and Hamilton."
Unfortunately despite the recent improvements, Davidson said because housing affordability started from such a stretched position, it is still significantly worse than normal.
"We suspect this still-stretched starting point for housing affordability will play a role in capping the rate of price growth over the medium term, as would potential limits on debt-to-income ratios for mortgage lending that might be imposed by the Reserve Bank early next year.
"But any growth in house prices, even if modest, will put upwards pressure on many of these measures which will see housing affordability remain a critical issue for NZ in the coming years - even if incomes continue to rise and mortgage rates slowly fall in the longer term," Davidson said.