Rising Incomes and Falling Mortgage Interest Rates: A Hopeful Sign for First Home Buyers Despite Flat House Prices

Date Published: 24 April 2024

Key Facts

• Rising incomes and falling mortgage interest rates are significantly impacting the affordability for first home buyers.
• The national lower quartile residential selling price remained approximately at $600,000 in March.
• Minor monthly movements in prices have been noted at the market’s lower end over the last 19 months.
• Mortgage interest rates have been dropping since their peak in November 2021 of 7.04%, reaching 6.77% in March 2022.
• Mortgage payments on homes bought at the national lower quartile price with a 10% deposit were roughly $911 a week in March.
• Median after-tax (combined) pay for a young working couple has increased by $126 a week from March of the previous year.
• Rising incomes, stabilization of lower-end market prices, and a slight decrease in mortgage rates have yet to generate substantial improvements in affordability levels.

Article Summary

The current housing market for first-time home buyers in New Zealand is largely influenced by rising incomes and decreasing mortgage interest rates. The Real Estate Institute of New Zealand reports that the national lower quartile residential selling price has generally remained consistent at about $600,000 since August 2022, after dropping from a record high of $670,000 in November 2021.

While mortgage interest rates have been reducing since peaking at 7.04% in November last year, and reached 6.77% in March this year, the slight decline may not be significant enough to substantially improve affordability levels. On the other hand, the median after-tax income for a typical young working couple has increased to $2081 in March this year, giving them an additional $126 a week.

Despite the scheme, however, around 40% of the increased income would have been offset by the increase in mortgage payments over the same period, and the remaining amount likely consumed by inflation. Therefore, coupled with the static nature of prices at the bottom of the market and the modest decrease in mortgage rates, the rise in incomes hasn’t dramatically improved the affordability for first-time home buyers over the past year.

Barring these indicators, it is currently unclear whether these shifts represent a turning point in the market or a brief pause before a resumed surge in prices. In summary, whilst the market conditions for first home buyers may not have significantly improved, they at least appear not to have worsened.

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