Housing market: Mortgages absorbing bigger chunk of household income - CoreLogic

CoreLogic chief economist Kelvin Davidson. Photo / Peter Meecham

By RNZ

The housing market is becoming more affordable but is still beyond the reach of the average household as the cost to service a mortgage is "alarmingly high".

Property research firm CoreLogic said the average house value to income ratio dropped to 8.5 in the three months ended June from 8.9 in the first quarter, but was still well above the pre-Covid rate of 6.6, and the long-term average value of 6.

"This is at least a start and will provide some would-be first home buyers with a little more confidence," CoreLogic chief economist Kelvin Davidson said.

Rising interest rates were another problem, he said.

"The amount of household income required to service a mortgage remains alarmingly high.

"The falls in property values that we've seen in recent months will have helped the required debt servicing costs for households [given smaller mortgages], but this effect has been outweighed by the rise in mortgage rates themselves."

CoreLogic estimated it would take about 53 per cent of gross household income to service an 80 per cent loan-to-value (LVR) mortgage, based on an average property value over 25 years, compared with 50 per cent just three months ago.

In Auckland, Hamilton, Tauranga and Dunedin, mortgage repayments were absorbing at least 50 per cent of gross annual average household income, with Wellington's figure of 47 per cent a record high.

"Compared to the long-run average of 37 per cent, the latest reading is still the most problematic area of affordability and surpasses the sustained 50 per cent peak we hit in 2007-08," Davidson said.

Improvement for renters in some cities

Rental affordability was steady at 22 per cent of gross average household income, with a slight improvement in Auckland, Hamilton, Tauranga and Wellington, while affordability had deteriorated in Christchurch and Dunedin.

Davidson said it was too soon to say whether the slight easing in affordability would continue.

"It may be a quarter or two yet before it becomes clear that rents and mortgage payments are starting to represent a smaller proportion relative to household income.

"Even so, it also needs to be acknowledged that affordability remains significantly stretched, and even a 10-15 per cent drop in property values from the peak will still leave many buyers under financial pressure," he said.

"Indeed, a continuation of low unemployment could limit the scale of house price falls, meaning any long-term improvement in affordability may need to come from sustained wage growth."