Prices are falling, so why is it still so expensive to buy in New Zealand?

Property values have been falling in New Zealand, but rising interest rates mean Kiwis are handing over more of their income to make mortgage repayments, CoreLogic reports.

Mortgage holders in New Zealand are spending over half (53 per cent) of their income on mortgage repayments for an 80 per cent LVR mortgage, indicating that affordability remains stretched.

This percentage has increased from 50 per cent in the third quarter of last year and is well above the long-term average of 38 per cent.

“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,” CoreLogic NZ Chief Property Economist Kelvin Davidson said.

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

Source: CoreLogic New Zealand

Properties in New Zealand are now valued at 7.8 times the average household income, above the long-term average of six, but down from recent highs.

“The latest figure of 7.8 is well down on the peak of 8.8 seen during the first quarter of last year,” Mr Davidson said.

“While it’s still stretched, it’s reassuring to see affordability on this measure has started to improve steadily.”

Price falls in Wellington had seen that city overtake Christchurch for the title of most affordable major centre, Mr Davidson said.

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

“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.

Nationally, it now takes 10.4 years for a prospective buyer to pull together a 20 per cent deposit, down from the 11.8 years it took a year ago.

“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.

In good news for tenants, the amount of income they need to dedicate to making rent has reached a plateau, Mr Davidson said.

“Rents currently absorb 22 per cent 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,” he said.

Mr Davidson said that the prospect of the Reserve Bank of New Zealand pausing rate rises soon would also aid affordability.

“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.

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Jack Needham

Jack Needham was a Digital Editor at Elite Agent in 2022 & 2023

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