Housing still as unaffordable as ever – CoreLogic

Despite housing becoming more affordable on some measures, continued rate hikes mean mortgage repayments are still eating up a massive chunk of people’s income, new CoreLogic data has suggested.

The latest CoreLogic Housing Affordability Report showed that New Zealanders were spending 53% of their income on mortgage repayments to service an 80% LVR mortgage, which, according to Chief Property Economist Kelvin Davidson (pictured above), meant 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%,” Davidson 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.”

Davidson noted, however, that some of this pressure could start to come off homeowners over the next three to six months, if mortgage rates flatten, house prices continue to decline, and wages increase.

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

What is the price-to-income ratio?

New Zealand properties are now valued at 7.8 times the average household income, well above the long-term average of 6. The latest figure has fallen in recent months, however, due to a decline in property values and increase in incomes. 

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

What is the most affordable region?

Wellington City is now the country’s most affordable main centre on the home value-to-income ratio, overtaking Christchurch.

With Wellington house prices falling significantly by -18% from the peak, affordability is now 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,” Davidson said. 

How long does it take to save a deposit?

A potential homeowner will take up to 10.4 years to save a deposit, but while the figure is still high, it’s down from the peak of 11.8 years 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. 

Across the main centres, Tauranga has the longest amount of time required to save a deposit, at 13.7 years. That figure is well above its long-term average of 10.8 years and the national figure of 10.4 years. Still, it was an improvement from its peak of 15.9 years in Q1 2022.

See the table below for the ratio of dwelling values to income and years required to save a deposit by main centres.

What is the rental outlook?

Good news for tenants who are saving to buy their first home – rents currently eat up 22% of household income nationally, but this has stopped rising as rents have flattened out and incomes have increased, with Davidson flagging further improvement in the coming months.

This could offer little consolation though, the economist said, as unemployment begins to tick up.

Improving outlook 

Borrowers could see some respite in the future as mortgage rates flatten, house prices further fall, and incomes continue to rise.

“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,” Davidson said. 

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