Affordable Housing: A Glimmer of Hope for First Home Buyers in New Zealand

In recent times, the New Zealand housing market has experienced some positive developments, offering a ray of hope for first home buyers. While affordability remains a challenge, there are five key insights that shed light on the current state of affairs.

1. Slightly improved affordability:

The combination of falling house prices, rising incomes, and stable mortgage rates has led to a slight improvement in housing affordability. However, it is important to note that affordability does not equate to cheapness. House prices have reached a bottom, and this may be the most favorable affordability position for the foreseeable future. Long-term progress in affordability will depend on sustained housing supply growth outpacing population changes.

2. Increased availability of low deposit finance:

The Reserve Bank's recent data reveals that the share of lending to owner-occupiers with a high loan-to-value ratio (LVR) has risen, indicating increased availability of low deposit finance. This change follows the relaxation of lending rules. Moreover, bank switching has become popular due to competition among banks, enticing borrowers with attractive rates and incentives.

3. Labor market stability:

The steady growth in employment and low unemployment rate have played a crucial role in enabling households to adjust to rising mortgage rates. This stability has kept loan repayment arrears and mortgagee sales at a minimum. The upcoming labor market figures for July are expected to show continued growth, reinforcing the positive trend.

4. Potential for a double-dip recession:

The NZ Activity (NZAC) Index for July will provide insights into the possibility of a double-dip recession in the third and fourth quarters of the year. Though counterintuitive, another recession could be beneficial as it would likely prevent further increases in the Official Cash Rate (OCR) and mortgage rates. Monitoring the NZAC figures will provide clarity on this matter.

5. Slowing construction sector:

The upcoming release of July's new dwelling consents data is expected to highlight a further decline in the construction sector. While this slowdown should not be seen as an immediate trigger for a snapback in house prices, avoiding a significant drop in new house construction is crucial to prevent future shortages.

Although the New Zealand housing market still poses challenges for first home buyers, recent developments offer some respite. While affordability remains a concern, the availability of low deposit finance and a stable labor market provide opportunities for aspiring homeowners. Monitoring the construction sector and economic indicators will be vital in understanding future trends and ensuring housing supply meets demand in the long run.