Rising incomes and falling mortgage rates make homeownership more accessible
Despite a slight increase in house prices, a new report highlighted a significant improvement in housing affordability, driven by lower mortgage rates and rising incomes.
Introduction to Housing Affordability Trends
In a surprising twist for the real estate market, homeownership has become markedly more attainable over the past year, RNZ reported.
Recent data showed a notable decrease in the portion of gross median household income required to service a new mortgage, falling from a peak of 56% in 2022-2023 to just 46% currently.
This improvement has occurred even though there has been no substantial decrease in house prices nationally.
According to a recent study from Massey University, from August to November last year, housing affordability saw an encouraging 9.3% enhancement across most regions.
Regional insights on housing affordability
Interestingly, while median house prices nationally increased by 2.9% during the quarter, affordability improvements were not uniform across all regions.
Northland and Southland, where prices rose by 18% and 16.1% respectively, saw affordability decline.
Conversely, Nelson stood out with a significant 17.8% increase in affordability, suggesting diverse regional dynamics at play.
Driving factors behind improved housing affordability
The report attributed the positive shift in housing affordability primarily to decreasing mortgage rates and incremental income growth.
Mortgage rates fell by 0.86% in the quarter, coupled with a 0.7% rise in average incomes. Notably, Canterbury recorded the highest income growth rate at 2.6%.
Arshad Javed (pictured left), a senior lecturer at Massey Business School, emphasised the impact of these factors.
“The decline in mortgage rates has been a crucial factor in improving home affordability," Javed said. “Coupled with modest income growth, we are seeing a shift toward better conditions for first-time home buyers.”
Annual affordability trends and future outlook
Over the past year, every region reported improvements in housing affordability, with a remarkable 19% increase despite a minor 0.6% rise in house prices, RNZ reported.
Mortgage interest rates saw a reduction of 1.31% annually, while wages increased by 2.9%.
Regions such as West Coast, Marlborough, Wellington, Waikato, and Canterbury experienced more than 20% improvement in affordability.
Javed optimistically projected continued positive trends.
“If interest rates continue on this trajectory and incomes keep rising, we can expect further improvements in affordability,” he said.
Challenges and Opportunities for first-home buyers
The report also shed light on potential opportunities for first-home buyers.
Starting from March of the previous year, rateable values have dropped in many parts of the country, combined with declining interest rates, creating favourable conditions for new entrants into the housing market.
However, Infometrics chief forecaster Gareth Kiernan (pictured right) provided a tempered view. Despite the improvements, Kiernan suggested that compared to historical standards, “the improved affordability would still appear poor.”
He elaborated that the initial surge in first-home buyers, prompted by a 15% to 20% drop in house prices, has tapered off as more investors return to the market influenced by advantageous tax rules.
