New Zealand's recent home buyers tighten their belts

WELLINGTON When Aarti and Gaurav Kathuria were saving for their first home, a three-bedroom townhouse in Auckland, they cut back on eating out and other expenses so they could put together the hefty deposit.

Now, only months after paying NZ$875,000 (US$560,000) for a home in one of the world's most unaffordable cities, they're faced with a new challenge: property prices are falling, while mortgage rates and living costs are going up.

The declining property values are a product of policies designed to knock some of the heat out New Zealand's red-hot housing market. But for people like the Kathurias, the hit to household wealth has meant a tightening of the purse strings.

"All you can do is cut back on things," Aarti Kathuria said.

House prices in New Zealand, which were already elevated before the COVID-19 pandemic, jumped 43 per cent in the two years to December 2021, according to the Real Estate Institute of New Zealand said. They've fallen around 1 per cent since December.

"Over the past 12 months people who have entered in that very heightened house buying frenzy will be challenged," Reserve Bank of New Zealand Governor Adrian Orr said last week, noting most households remain in a strong equity position.

The Kathurias are also trying to save 30 per cent of their income to provide a financial buffer for future costs. With petrol costs and food prices rising, they're catching the train to work, walking to the supermarket rather than driving and renting out a spare bedroom.

Housing affordability has plummeted over the past two years as home prices and debt levels surged, driven by record low interest rates, massive fiscal relief and an inability to spend on overseas travel.

Analysts at Australian financial firm Barrenjoey said nearly 40 per cent of loans in New Zealand were to borrowers with debt more than six times their income.