First-time home buyers in New Zealand find silver lining amid housing downturn

by CoreLogic semi-annual report on first home buyersreleased today, shows around 3,750 first purchases were made in the third quarter of 2022, the lowest figure for this quarter of the year since 2011.

CoreLogic NZ Chief Property Economist Kelvin Davidson said the result came as no major surprise, given continued affordability pressures, strict lending rules and higher mortgage rates.

However, he said despite low volumes, the ratio of first-time home buyers to all buyers has improved throughout 2022.

“All buyer groups are hampered to some degree by these same factors, and in fact FHBs have held up relatively well in this environment,” he said.

“In fact, the proportion of FHBs to the rest of the market has improved from 23% in the first half of 2022 to closer to 24% in the third quarter. This is more than the long-term average market share of FHBs, which is around 22%.

Since the previous edition of the First Home Buyer Report in May 2022, Mr Davidson said the slowdown in New Zealand’s property market had become even more entrenched, with buyers and sellers taking their time to sort out deals, which usually results in low sales transactions.

Mr Davidson said that compared to other buyer groups, there was a flicker of confidence among FHBs, even in a credit-test environment.

“We suspect that some of these recent buyers had previously held back as prices fell, but they’ve now started to see value again – perhaps even genuine ‘bargains’ – and are ready to make a purchase even if house prices haven’t fully found the floor just yet,” Mr Davidson said.

“However, with inflation now appearing to be more of an issue, the official cash rate has risen and home loan interest rates are rising again, typical mortgage rates are expected to rise towards 7% or more over the next few months. month.

“It would be a severe test for many future FHBs, especially as the cost of renting per fortnight is starting to look relatively cheap.”

A simple comparison of fortnightly rents versus mortgage payments shows that being a tenant is significantly cheaper (ranging from a savings of $927 in Auckland to $401 in Dunedin and $564 nationally) – because mortgage rates increased and rental growth slowed.

Property type

Single-family homes – as opposed to flats or flats – now account for a slightly higher proportion of all FHB purchases, at 74% in the third quarter of 2022 compared to 73% for the same period in 2021. Mr Davidson said the figures suggest that the broader market downturn has now begun to put larger housing back within reach of FHBs.

FHB median price

The median price that FHBs pay to enter the market has started to drop lately. In Q3 2022, the median FHB was $720,000, compared to $750,000 in Q2 and $759,000 in Q1. Mr Davidson said this reflected current “buyer’s market” conditions.

“The median price of $720,000 paid by FHBs is lower than it has been for some time, but still significantly higher than the bottom quartile (25% lower) for all buyers, of $580,000. In other words, the ‘typical’ FHB doesn’t always enter the bottom of the market and work its way up,” he noted.

Where FHBs are Most Active

Across Auckland, Hamilton, Tauranga, Wellington, Christchurch and Dunedin, national FHB trends can be seen.

Many of these regions have seen decent strength in FHB market share over the past few months, particularly Hamilton and Wellington, where the latest share figures are around 5% above the long-term average.

Mr Davidson said that, as was the case nationally, each of the major centers recorded a lower median FHB price in the third quarter of 2022 than all buyers. Auckland had the highest median FHB price paid of $940,000, and also the biggest gap to any buyer – $163,000 less than the median of all buyers of $1,103,000. Tauranga’s FHB price paid just topped $800,000 in the third quarter, with Hamilton and Wellington around $750-$760,000, and Christchurch and Dunedin under $600,000.

FHB outlook

The tougher credit environment has been at the heart of this slowdown, just as it has also played a key role in the post-COVID recovery, Mr. Davidson said.

Strict rules on loan-to-value ratios, restrictions from CCCFA legislation, restrictions on high debt-to-income ratio mortgages and significantly higher mortgage rates have all added to the pressures.

As a result, the total number of properties purchased by each buyer group is down, but FHBs have managed to hold up relatively well in terms of market share.

“FHBs have undoubtedly benefited from improved housing affordability as prices have fallen and in recent months we’ve seen their relative presence in the market increase quite a bit,” Davidson said.

“There was a noticeable lull in FHB market share during the first half of 2022, compared to the second half of 2021, when they accounted for one in four buyers. Seeing them regain market share closer to this figure between July and September shows their resilience and determination to enter the market.

“This is happening when mortgage rates have risen sharply and rent increases have slowed, with many areas now cheaper to rent than to pay a mortgage. This simple comparison certainly highlights that most FHBs are likely to buy for reasons other than simple financial factors, such as occupancy stability.

Key insights from this report include:

• The number of purchases made by FHBs in the third quarter was around 3,750 and the lowest for this quarter since 2011.
• FHB’s share of all other buyer groups fell from 23% in H1 2022 to 24% in Q3. The historical average of the FHB market share is around 22%.
• Auckland had the highest median FHB price of $940,000, down from the million dollars spent in Q1 2022 to enter the market.
• Both Invercargill and Whanganui were on the lower end of the spectrum, with FHBs paying a median of $425,000 in both markets.
• Single-detached homes accounted for 74% of FHB purchases in Q3 2022.
• FHBs paid a median price of $720,000 to enter the market in Q3 2022, compared to $759,000 in Q1 2022.

Download the first property purchase report

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