Home Affordability Improves Amid Declining Mortgage Rates And Rising Incomes

The latest Home Affordability report from Te Kunenga ki Pūrehuroa Massey University has shown a notable improvement this quarter, driven primarily by a decrease in mortgage interest rates and a slight increase in income levels.

This positive trend has contributed to enhanced affordability across most regions, with only a few experiencing a decline.

Quarterly results

The improvement this quarter, which tracks affordability from October to December, shows that at the national aggregate level, affordability has improved in 12 regions.

Median house prices declined in only two regions. The most significant decrease in percentage terms occurred in Nelson, where prices fell by 5.1 per cent ($35,500). Conversely, median house prices surged in Southland by 18 per cent ($79,000) and in Northland by 16.1 per cent ($101,000). Nationally, the overall median house price increased by 3.9 per cent ($30,000) in this quarter.

Home affordability improved by 9.3 per cent nationally. Fourteen regions experienced an improvement in affordability, while only two regions (Northland and Southland) saw affordability deteriorate. Nelson recorded the most significant improvement in affordability, with a 17.8 per cent increase.

Mortgage interest rates slightly decreased by 0.86 per cent, settling at 6.29 per cent as of October 2024. This marks a return to the medium-term trend of declining interest rates, following a period of increases over the past three years by the Reserve Bank.

Aggregate incomes saw a modest increase of 0.70 per cent during the quarter, with more than half of the regions reporting higher average weekly earnings. The Canterbury region experienced the largest income increase at 2.6 per cent.

Author of the report, Massey Business School Senior Lecturer Dr Arshad Javed says, "The decline in mortgage rates has been a crucial factor in improving home affordability. Coupled with modest income growth, we are seeing a shift toward better conditions for first-time home buyers."

Yearly results

On an annual basis, home affordability at the national level improved by 19 per cent. Median house prices increased by 0.6 per cent ($5,000), reaching $795,000, and two-year mortgage interest rates declined by 1.31 per cent, from 7.60 per cent in October 2023 to 6.29 per cent in October 2024.

Overall weekly earnings rose by 2.9 per cent.

Affordability improved across all 16 regions, with the most significant gains recorded in the West Coast, Marlborough, Wellington, Waikato and Canterbury regions, all exceeding a 20 per cent improvement.

While most regions saw an increase in median house prices, the greatest rise was observed in Southland (20.5 per cent or $88,000), while the West Coast recorded the largest decline (3.6 per cent or $14,500).

Dr Javed says despite some regions experiencing house price increases, the overall trend in affordability is positive.

“The lower interest rates have helped balance the market, making homeownership more accessible."

General trends

• The national house price-to-income ratio increased to 10.1 times annual wages this quarter

• Nationally, affordability improved by 9.3 per cent during the quarter, alongside a 3.9 per cent rise in median house prices

• The primary drivers for this quarterly improvement were lower mortgage interest rates and modest income growth

• Over the past year, affordability at the national level has improved by 19 per cent, driven by lower mortgage interest rates, changes in median house prices and increasing weekly earnings.

"We are witnessing a long-awaited stabilisation in the housing market. If interest rates continue on this trajectory and incomes keep rising, we can expect further improvements in affordability, Dr Javed explains.

You can read the full report here.

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