Kelvin Davidson: Cotality Chief Property Economist on the housing value-to-income ratio reaching its lowest since mid-2019

Lower mortgage rates and income growth have helped improve housing affordability. 

Cotality NZ’s new report finds the national value-to-income ratio reached its lowest point since mid-2019 in the June quarter, at 7.5%.  

National property values also remain almost 17% below their post-covid peak. 

Cotality Chief Property Economist Kelvin Davidson told Mike Hosking mortgage serviceability has seen a significant change, compared to its 2022 high of 57%. 

He says it now takes around 44% of the median household income, so it's getting close to normal. 

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Episode Transcript

Speaker 1 (00:00):
Now in a week where we have a number of
brighter economic reads, we can perhaps add another from the
housing market. So we've got housing affordability at its most
affordable level since twenty nineteen, almost seventeen percent better than
at the peak of COVID. Time required to save a deposit,
for example, is now down to ten years, whereas once
was fourteen. Kelvin Davidson is Chief Property Economistic Cutality is
back with's Calvin Morning to you go on it and

(00:22):
your reports. Is talks about steady income growth. See this
is the psychology of housing, isn't it. Because if I
round it up most people and goes, now, what about
your steady income growth? They go, what income growth? Wouldn't they?

Speaker 2 (00:33):
Well, yeah, just right now they might be questioning that.
I guess what we're looking at here is over a
longer period of five or six years, where house prices
have fallen and comes have gone up over that period.
Might be slow now, but they have increased over that period,
and of course the house price is down. So yeah,
those things have certainly combined to improve housing affordability. Not cheap,
but it's a lot better than it was.

Speaker 1 (00:52):
We should also remember the power of the lower interest rates,
because we forget that done. We sort of talk about
twenty five point. If you go back over several years,
it's come down exponentially, hasn't it.

Speaker 2 (01:01):
Yeah? Oh yeah, And a lot of people, for whatever reason,
use their sole key house price or housing affordability measure
as the house price to income ratio. Now that's fine,
but what it ignores as lower mortgage rates. So yeah,
once you factor that and things starts looking a lot better. Actually,
on our measure, we're looking now forty four percent of

(01:22):
median household income goes to service a new mortgage. The
average there is forty three, So it's now pretty close
to normal. Now it's not below it. It's not necessarily cheap,
but it's back to some kind of normality.

Speaker 1 (01:33):
But it was fifty seven, but I mean fifty seven
to forty three forty four. That's a material difference, isn't it.

Speaker 2 (01:40):
Yeah? Yeah, And a lot of that you would put
Obviously house prices have fallen, but the sharp falls and
interest rates are part of that too, And I guess
now pretty clear indication that the interest rates are get lower.
So I think we're establishing some kind of foundation. I
think the house prices.

Speaker 1 (01:55):
There's a window here though, because at some point if
Christian and is a gang of men and women are right,
the affordability window closes because an investor is going to
go right, I'm in, or people are going to start
getting a bit busy about the market, and your window's gone.

Speaker 2 (02:10):
Yeah. Well, that's that's right. And that's what we've seen
in past cycle, is that there are reasons to think
that cycle might be a bit more muted this time.
We've got get two income ratio restrictions. Obviously, the government's
pushing incredibly hard on housing supply. But the thing that's
hard to account for, and whenever its shifts you never
quite know. But it's the psychology and the mindset. And
I'm always conscious of that. And if people think house

(02:30):
prices will go up, well they probably tend to so
conscious of that. But just right now, there are some
challenges in the form of unemployment. So let's keep me
a lot on things for now.

Speaker 1 (02:39):
Yeah. In fact, funny you should say that, because we've
got it at Chris me and On Late who owns
Earburn and Winton. He said yesterday and his report that
until the job market turns, he doesn't think housing will
turn Is that fair?

Speaker 2 (02:51):
Yeah, I agree with that. I mean, and it's not
just people who have lost their jobs, which of course
a lot lots of people have, but also it's the
wider spillover thing in a recession. Most people do actually
keep their jobs, but it's the widest spillover on psychology
and confidence. You're if you're not feeling quite as secure
in your job, and you're probably not going to rush
out and buy a big ticket item. But as soon

(03:11):
as that confidence starts turn around, maybe we see the
unemployment rate stones take down. Then I think that is
a takes away a little bit of a handbreak.

Speaker 1 (03:19):
Grant Inside's always appreciate it. Kelvin Kelvin Davidson, who's the
chief property economistic Catality.

Speaker 2 (03:24):
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