Housing Outlook Positive But Affordability Weak

CoreLogic house prices rose 0.4% m/m in January to be down 2.7% y/y after falling 3.3% y/y in December. Prices are now 2.5% higher than their September 2023 trough as immigration has increased demand and the new government is more supportive of property. But the January rise was less than both November and December and CoreLogic warns that the revival is still tentative.

• The 1.1% rise in home prices in Q4 has resulted in a decline in affordability. Our housing affordability index (HAI) fell in Q4 despite the mortgage rate being little changed in H2 2023. Affordability is now over 36% below trend after 35.6% in Q3, the worst since 2008. Rates have stopped rising but now house prices are.
• While the RBNZ doesn’t have the first rate cut in its projections until H1 2025, the market is expecting a cut by July, which would help housing affordability. But if easing begins this year, the effect is likely to be offset by rising house prices.
• The RBNZ is expected to reduce the LVR requirements around mid-2024 for both owner-occupiers and investors, which is likely to increase demand, especially if it coincides with the first rate cut.
• The ratio of house prices to rents is a good proxy for housing valuation and its decline since Q2 2022 has helped improve the value of NZ housing. The ratio has been signalling that dwellings have been undervalued since Q2 2023 and in Q4 by just under 5%. Rents rose 4.5% y/y in Q4.

Source: MNI - Market News/Refinitiv/Bloomberg