More than half of household income goes on the mortgage, CoreLogic says

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Households now have to spend an “alarmingly high” 53% of their income on servicing a mortgage, and that affects affordability, CoreLogic says.

But the property research company’s latest Housing Affordability report also showed there had been an improvement in the house price-to-income ratio, and the time it took to save a deposit.

Nationally, the percentage of household income that went towards paying a mortgage on an average-price property, with a 20% deposit and a 25-year term, rose to a record 53% over the three months to June, up from 50% in the first quarter.

It was the highest level recorded since CoreLogic started measuring these figures in 2004, and was far above 32% in the third quarter of 2020, and the long-term average of 37%.

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CoreLogic chief property economist Kelvin Davidson said the “alarmingly high” rate was the most problematic area of affordability, and surpassed the sustained 50% peak that was hit in 2007 to 2008.

It had been driven up by the sharp rise in mortgage rates over the last year, he said. The one-year rate lifted from an average of 2.21% in June 2021 to 5.11% in June 2022.

“The falls in property prices in recent months will have helped the required debt servicing costs for households, but this effect has been outweighed by the rise in mortgage rates themselves.”

In Auckland, Hamilton, Tauranga and Dunedin, mortgage repayments took up at least 50% of annual average household income, while Wellington’s figure of 47% was a record high.

Mortgage repayments account for at least 50% of the annual average household income in Auckland.

Chris McKeen/Stuff

Mortgage repayments account for at least 50% of the annual average household income in Auckland.

In Christchurch, 44% of household income went to mortgage payments, up from 39% in the first quarter and from 28% a year ago. But it was below the city’s peak of 48% in 2007.

But while mortgage repayments had become less affordable, falling house prices and increased incomes had led to improvement on other housing affordability measures in the report.

Last year housing affordability reached the worst levels on record, following a 41% surge in the average house price during the Covid era.

Davidson said the pattern of erosion had slipped into reverse in the past few months, and the turning point was here.

The average property was now worth 8.5 times the average income, down from a record 8.9 in the first quarter.

It was still up on the pre-Covid rate of 6.6, and the long-term average of 6.0. But it was a start and would provide some would-be first home buyers a little more confidence, he said.

“The small improvement in the value-to-income ratio is evident right across the country, main centres and the provinces alike.”

House prices which were three times the median income were considered to be “affordable”.

Tauranga is the least affordable main centre with a house price to income ratio of 11.5.

Christel Yardley/Stuff

Tauranga is the least affordable main centre with a house price to income ratio of 11.5.

The report showed the average national house price was $1.01 million in the second quarter, while the average annual household income was $119,474.

Tauranga, where the average price was $1.16m and the average income was $101,187, was the least affordable main centre with a ratio of 11.5, down from 11.9 in the first quarter.

Auckland, with an average price of $1.44m and an average income of $148,780, was the second-least affordable main centre with a ratio of 9.7, down from 10.4.

Dunedin and Hamilton had ratios of 8.2, down from 8.5 and 8.4 respectively, while Wellington’s ratio was 7.7, down from 8.1.

Christchurch’s ratio rose to 7.1 from 6.9, but it remained the most affordable main centre. It had an average price of $783,216 and an average income of $110,932.

On a national basis, the time it took to save a deposit had fallen to 11.4 years, from a high of 11.8 years earlier this year. This remained above the long-term average of 8.0.

The time required to save had eased from record highs in all main centres and urban areas, but it was still Tauranga where the longest period of time was required at 15.3 years.

Davidson said the latest measures suggested the worst had passed in this cycle for housing affordability, and the situation had started to improve for property buyers.

“Even so, it needs to be acknowledged that affordability remains significantly stretched, and even a 10-15% drop in property prices from the peak will still leave many buyers under financial pressure.”

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