NZ’s most affordable city: Where ‘only’ 40% of homeowner pay is going towards the mortgage

1. Housing isn’t cheap, but it’s a lot cheaper than before

The latest CoreLogic Housing Affordability figures show a much-improved picture for home buyers and existing owners, with most of the measures we look at now back down much closer to their long-term averages – on the back of lower house prices, rising incomes and, of course, the recent falls in mortgage rates. One such measure is the percentage of gross median household income required to service a (relatively new) mortgage, which is now 46%, well down from the 2022-2023 peaks of 56%. That said, the average since 2004 is 42%, so we’re not quite back to normal yet.

The markets that stand out are Auckland and Wellington, where sharp property value falls since the peak now mean that housing is more affordable than it’s been for many years. In Auckland, for example, the mortgage payments metric is now 49% (still higher than the nationwide figure), but back very close to its own average of 48%. In Wellington City, that figure is 40%, below its average of 41%. Indeed, Wellington now has a strong claim to being the most affordable main centre, although this doesn’t necessarily mean it’s suddenly going to boom either.

Switching to rent affordability, however, the news is not nearly as rosy. The national ratio of rents to household income is currently 28%, above the long-term average of 26%, and a new record high. In other words, it remains very difficult for tenants to simply keep up with their day-to-day living costs (especially if they earn less than average but still pay the average rent), let alone try and save for a house deposit if that’s their goal. In the end, we simply need a higher supply of houses relative to the demand for them – this will be a key factor in controlling affordability pressures.

2. The last hurrah for short-fixes?

The Reserve Bank’s latest mortgage lending figures showed that 33% of new loans in January were on floating rates and 57% were fixed for 6-12 months. In other words, only 10% of loans were taken out on fixed terms longer than 12 months. Not so long ago, more than 50% of new loans were fixed for longer than a year. In other words, borrowers are still looking to stay as short as they can, with the aim of getting to the lowest mortgage rates as fast as possible.

But the next set of data which we’ll get in early April will be really interesting. After all, that will cover February, which was when we started to see some really strong deals for the longer-term fixed rates, such as sub-5% for two or three years. Will the February data mark the start of borrowers starting to shift their loans out to longer terms again? I’ll be watching very closely.

CoreLogic chief economist Kelvin Davidson: "Wellington now has a strong claim to being the most affordable main centre, although this doesn’t necessarily mean it’s suddenly going to boom either." Photo / Peter Meecham

3. Net migration is showing signs of levelling out

After a huge spike over 2022 and 2023, and then a subsequent plunge, the net migration balance has shown signs of flattening out in recent months, with the annual running total potentially starting to level off at around the low 30,000s. Nothing is set in stone yet, but if this does prove to be the ‘new normal’, it’s about the same as the old pre-Covid normal. In terms of a property perspective, that might be a factor in preventing major falls in rents, although net migration running at around normal levels over the next 6-12 months wouldn’t necessarily see a fresh growth period either.

4. Price pressures are still under control

Stats NZ’s latest monthly selected price indexes data (covering about 45% of the benchmark quarterly CPI) showed that inflation generally remains contained, such as food prices rising by 2.4% in the year to February, similar to January’s 2.3%. Unfortunately, we still didn’t get the rent price data this time around either, due to a methodology change involving MBIE and Stats NZ.

5. Recession over?

And finally, Stats NZ will release Q4 GDP figures on Thursday. As always, the caveat is that these numbers will relate to a period that’s now quite a long time ago, but with the expectation being that the economy might have expanded by around 0.5% in Q4, this will still be great news – following falls of 1.1% in Q2 and 1.0% in Q3. Timelier economic data suggests things have improved a little further to start 2025 as well, so this adds to the case for anticipating a modest property upturn this year.

- Kelvin Davidson is chief economist at property insights firm CoreLogic