An average of 9.3 years to save a 20% deposit: have homes really become cheaper? This week's key issues for property investors

Compared with previous housing market upturns, the current recovery in New Zealand's property market is uneven, with performance also varying between regions. The latest property figures show nationwide sales of about 3200 homes in January, up just 2% on the same time last year. Sales in major cities including Auckland, Hamilton and Dunedin actually showed signs of decline.

Notably, apart from January 2023, nationwide property sales this January were the lowest since 1983. This suggests that sustained pressure from high mortgage rates continues to constrain the market. Following January's subdued activity, the housing market is expected to rebound strongly in February.

Housing affordability remains poor even as New Zealand's economy begins to recover, despite some figures looking “rosy”. Measured by the time ordinary people need to save a deposit, current house prices are slightly more affordable than at their worst in the first quarter of 2022, when it took 11.5 years, compared with just 9.3 years now. But have homes really become cheaper?

In fact, measured as a percentage of average gross household income, mortgage repayments currently stand at 49%, little better than the record high of 52% at the end of 2022. This means the housing market still faces substantial repayment pressure. Debt-to-income (DTI) limits may help address this to some extent over the medium term, but ultimately enough homes need to be built to meet long-term demand.

For tenants, rising housing costs remain a difficult aspect of housing affordability. The latest Stats NZ figures show that rents for new tenancies had risen by 6.8% as of January this year, more than twice the long-term average increase of 3.2%. This reflects recent wage growth, strong demand driven by high net migration, and a tightening supply of rental properties. Regionally, rent growth has been particularly strong in Auckland and Christchurch, but rents have also risen rapidly in all other main centres.

The latest figures show that lending at high debt-to-income ratios remains limited. First-home buyer loans with a DTI above 6 account for just 6–7% of the total, while the share of investor loans with a DTI above 7 is also relatively small. In fact, the full impact of DTI limits on the market will only emerge when mortgage rates fall again. Over the longer term, lenders will continue lending to investors, but the pace of growth may slow markedly.

This Thursday, attention will turn to the latest New Zealand Activity Index, which will cover overall economic activity in January. CoreLogic chief property economist Kelvin Davidson said previous index readings suggested that the economy may well have avoided recession in the final quarter of last year, making the start to 2024 a key focus for the market.

He also noted that stronger economic activity would support employment and the property market, but could keep inflation elevated for longer, prolonging the pressure from high mortgage rates. How to balance these effects is therefore a question requiring careful consideration by the Reserve Bank of New Zealand.