The property analytics company found despite weaker property values and rising incomes, affordability remains worse than long-term averages.

Mortgage payments as a percentage of median household income remain at 54 per cent, close to the peak of 56-57 per cent, and well above the average of 43 per cent. The worst reading was 57 per cent in the second quarter of 2022.

CoreLogic’s chief property economist, Kelvin Davidson, says households that have recently bought a property are paying more than half their income in servicing a new mortgage and the rising cost of living and dwindling savings are likely to intensify financial stress and leave little buffer for emergencies.

“For nearly three years, the share of income needed for mortgage payments has remained in the 53 per cent to 57 per cent range, highlighting the prolonged period of elevated repayment burdens on households.”

To put this in perspective, during the previous peak in 2007-2008, mortgage payments only reached 50 per cent or more of income for six quarters.

“The existing phase of strained mortgage affordability has lasted much longer, possibly placing many more New Zealand households under considerable financial stress,” Davidson says. “One silver lining has been the sustained high employment and rising wages, which have helped people manage during this period.”

Value-to-income ratio

Some housing affordability metrics are at their lowest since Covid. However, would-be home buyers and owners still face significant challenges.

With the median property value 7.7 times the gross annual median household income, this ratio has fallen from 7.9 in the first quarter of this year and is at the lowest level since early 2020. Although the metric has declined from its peak of 10.2 during the height of the post-Covid boom in the fourth quarter of 2021, home values continue to exceed household incomes, remaining above the long-term average of 6.8 established since 2004, so affordability is still worse than normal.

Davidson says the slight improvement in housing affordability reflects the sharp falls in property values over the past two-and-a-half years as well as the steady growth in incomes over the same period.

Years to save a deposit

As of the second quarter of this year, it typically takes 10.2 years to save for a deposit, based on median property values and household incomes.

This is above the long-term average of 9.1 years but represents the lowest figure since early 2020 and is a marked improvement from the peak of 13.6 years in 2021’s fourth quarter.

“It’s a clear improvement from the heights of late 2021 and early 2022. The trend is positive, but for households to need more than a decade to save a deposit to get into the market is a serious affordability challenge,” Davidson says.

Rent-to-income ratio

Rents consume 28 per cent of gross household income, surpassing the long-term average of 26 per cent and remaining near record highs.

Over the past three years this ratio has stayed relatively constant as incomes and rents have increased at a similar pace.

The rent-to-income ratio has stayed persistently high, creating financial pressure for many renters, particularly those with incomes below the median.

“These households are likely to feel the strain even more acutely than the average figure suggests.”

Affordability around NZ

Tauranga remains the least affordable main centre with a value-to-income ratio of 9, despite improving from the peak of 12.3 in late 2021 and early 2022.

“While Tauranga remains expensive, it’s not as stretched relative to its own historical average as other regions like Dunedin, Christchurch and Hamilton, where affordability challenges are also pretty acute,” Davidson says, noting affordability is an issue in many regional centres too.

Auckland is the second most expensive main centre, albeit with an improved value-to-income ratio of 8.2 and years-to-save figure of 11.

Both figures are down significantly from their respective peaks of 11.6 and 15.5 recorded in late 2021. Wellington and Hamilton are the “cheapest” of the main centres with a value-to-income ratios of 7.

Affordability outlook

Even with the prospect of a near-term rate OCR cut that will provide mortgage holders with some respite, Davidson says the move is likely to only slightly improve affordability.

“Even if mortgage rates fall more significantly over the next six to12 months, this could be offset to some extent by an increase in house prices, while at the same time the labour market is loosening and wages are slowing,” he says.

“Any sustained improvement in housing affordability over the long term will require more significant changes such as an increase in the supply of dwellings, supported by government initiatives aimed at expanding land availability and infrastructure.”