Fluctuating regional house price affordability and the irrelevance of mortgage rates

Abstract

Although house prices and wages are both influenced by distinct factors that shape their own evolutions, they are also intrinsically connected through house price affordability. Of prime importance in ensuring that the housing market does not overheat are macroeconomic policies centred around adjustments in the mortgage rate. This study contributes to the understanding of the link between housing market affordability and mortgage rates by investigating this association across regions of New Zealand. Application of trajectory regressions to quarterly data between 2000-2017 reveals only a limited connection between house price affordability and mortgage rates. We also show that the global financial crises affected house price affordability differentially in different regions.