Much has been made of the effect higher interest rates are having on first home buyers. But in some ways they are proving the most resilient of all borrower types.
Since the housing market peaked late last year, the number of sales recorded by the Real Estate Institute of New Zealand has dropped from 8595 in November 2021 to 4892 in October 2022, giving a 43% decline in sales.
Over the same period, the number of mortgages approved for first home buyers has fallen from 2959 to 2132, a 28% decline (Reserve Bank figures).
That suggests that although first home buyers have been affected by rising interest rates, they have remained much more active in the market than other types of buyers such as investors and existing owner-occupiers trading up or down.
If you take the number of mortgages approved to first home buyers each month as a percentage of REINZ sales as a rough measure of first home buyers' share of the total housing market, it has risen from 34% in November 2021 to 44% in October this year.
That suggests that while first home buyers have been affected by rising interest rates and fewer are becoming home owners than a year ago, the decline has not been as great as might have been expected.
There are also some surprises in the amount of money first home buyers are borrowing.
In November last year the REINZ's national lower quartile selling price peaked at $670,000. By October this year it had dropped back to $610,000, a decline of 9%.
But over the same period the average mortgage approved to first home buyers declined from $587,699 to $571,764, a drop of just 3%. The estimated average amount paid for a home by first home buyers declined from $705,000 to $690,000 over the same period, a drop of just 2%.
So while fewer first home buyers are purchasing their own homes compared to a year ago, their numbers have declined at a slower rate than other types of buyers, and on average, they are paying about the same and borrowing about the same amount as they were when the market was still in boom mode.
But perhaps they are getting a little bit more house for their money than they were at this time last year.
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84 Comments
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Thanks Greg.
Well done. Has been making constructive/creative comment for or against various topic hard to read.
I'm surprised it took this long to be honest.
"Resilient" is a word which is not infrequently used with respect to the NZ housing market.
I daresay that's not about to change.
TTP
Perhaps "Persistently" is a better word of choice? Persistently falling in price.
This sounds like like grate news
Edit: private owner occupiers are getting a bigger slice of a smaller pie.
FOMO is a strong emotion and it turns into deadly combination when even Social pressure is added to it.
Is there really FOMO in the market right now? Even your mate TA is saying it's completley gone. The market's nothing like it was a year or 2 ago, where everything was selling prior to or at auction. There's more stock on the market, taking more days to sell. Rents are cheaper than mortgages.
It's not FOMO that are making people buy right now...
People still yearn to have a place of their own. They know it's not getting any easier to buy, with rising interest rates it's only making it more difficult. There's more opportunities in the market than there has been for quite some time and generally they're able to take their time with due diligence and negotiation.
Correct.
For a very large proportion of prospective FHBs, it’s effectively impossible to buy right now, mainly because of rising interest rates ( and of course getting sufficient deposit together)
However for a certain minority of prospective FHBs - those on higher household incomes, and/or lucky to call on ‘the bank of mum and dad’- it’s not necessarily a bad time to buy, especially if you are successful with low-ball offers.
"it’s effectively impossible to buy right now, mainly because of rising interest rates (and of course getting sufficient deposit together)"
Or to put it another way - it's not high interest rates or the size of the required deposit, it's because the Asking Prices are still way too high.
Low-ball offers are still laughed at, especially by any agent who has a property portfolio of their own to protect. Only when that's over, will we see true price discovery.
Still seeing a lot of properties at peak 2021 asking when prices have supposedly walked back a long long way since. Suspect that is being masked by low sales volumes in some areas, but that may pick up speed as people find they need to sell.
I know of a couple of low ball offers that have succeeded. Mind you, not ‘ultra’ low ball.
I think anything 20% below peak late 2021 price is worth a go, if it’s a place you really like.
People will still spend what they can afford, it's just from now on you get more and more for the same price than last year. Still a bit too early to buy IMHO but people are seeing today's prices as bargains comparatively. I just hope they're not going to get into trouble further down the line
FMO - Forever Missing Out….. that’s what FHBs don’t want for themselves. At end of the day you can’t put a price on family home.
We might get hit with another virus and wipe us off who knows, people just don’t care and can’t keep waiting, life moves on.
I agree to some extent.
However if I was a FHB right now I wouldn’t buy a place unless it was for a price down at least 15-20% from peak 2021 valuation.
Agree
So HM if the house ticked all boxes, good location, in the right school zones, close to work & something you previously thought you couldn't buy etc... you'd still let it go if it didn't meet your specific 'discount' range? If you did that, you could be waiting a long time for the next right property to come along and who knows what the market would be like then...
I guess it depends. But as a general rule of thumb would be looking for a price 15-20% below peak and negotiating for that. Maybe I could live with somewhere around 15% below peak value if it really really ticked all boxes and it was a long term purchase proposition.
But would be hesitant to push beyond that given I think values have a further 10% further to fall.
But these are generalisations, context is important.
Todays prices are like Black Friday sales. Houses were never worth last years price in the first place. It’s no discount out there, still horrendously overpriced.
Bang on, exactly. Although you've gotta remember that with some suburbs houses are like buses, there's another one arriving soon
I guess most FHB are relatively young and they just really want a house and if they can rummage up the money they will just go for it. And probably less concerned with the gazillions of predictions on where the market might go from here, because, well, they just really want a house. Many probably won't be delving deep into all global/local macroeconomic happenings either. Fair enough too.
Saying that, I'm a FHB but not a young one, and I have the means, although not the immediate need, to own a house. I'm certainly not going to pull the trigger until this plays out further. Just saving a heap more while I wait and see.
10K grant for a couple to buy existing first home in Auckland up to 895k value. Access to Kiwisaver funds for the deposit. 95% home loans. Fortune favors the brave? Being at the mercy of your landlords whims is a powerful motivator.
10K of free money will nearly cover 2% interest on 570k for a year.
Probably soon to be 7 per cent and the bank wants interest on the whole lot plus principal. Rates, insurance and maintenance and everything going up including food. How do the young ones do it today. My biggest loan was $100k on a $490k purchase. That’s now worth $3m. My wife never had to work. Ah the good old days. Us boomers are indeed very fortunate. I have felt very sorry for FHBers for many years. Things needed to change and fortunately that is finally happening.
Whilst the headline suggests FHB behavior is unaffected, the article quotes a 28% decline in FHB mortgages over the compared time period. While the numbers show they are less affected than investors/up-graders/down-graders, 28% fewer FHB seems significant to me - especially with increasing inventory levels
Yes and that 43% drop in sales will be impacting agents, lawyers revenues etc who all clip the ticket when a transaction occurs.
Exactly, I felt once again that it was a slightly misleading headline.
The FHB market is far from strong. It’s simply less dire than the other segments of the market.
Not such great news. Prefer FHB's remain on the sidelines. The punch power of their deposits will only grow. Rent and interest are both dead money. By waiting, chances are, less of the latter need be paid.
One Year Term Deposit with Rabobank = 5.5% (watch that deposit grow)
edit
The sad part of modern lifestyle is that folks cannot save...
Yes, true that. I think getting ahead takes discipline and determination no matter which road one takes. A lot of the young want it all now. Paying loads of interest seems an okay thing to do until it starts to strangle the finances.
Patience is key in an effort to get ahead, some roads are more profitable in the end than others.
"A lot of the young" have probably watched rent, house prices and all their other living costs explode and probably feel there's little they can do to arrest the situation, so why bother trying. Frankly, who can blame them.
Agree - I think our housing/rental market has had a lot to do with the anxiety, depression, suicide of people in their 20's/30's in this country. Just too stressful to try and get established within society/community.
Suicide rates have decreased over the last few years.
He didn't say they increased. He said it was likely a contributing factor to suicides of people in this age bracket.
The feeling that you are worth more dead than you are alive can be very powerful when you're in your late 20s/early 30s.
Low grade comment deleted.- GN
Haha.. facts hurts..
People 'can' save, even if a small amount, but choose not to. Delayed gratification pays off
"People 'can' save, even if a small amount, but choose not to. Delayed gratification pays off"
Agree there HW. Some of the prospective FHB's I know have used delayed gratification the last 12 months by not buying and have been saving and as a result they are in a far stronger financial position to buy when they decide they want to.
"First home buyers proving more resilient than might be expected in the face of rising interest rates" - dare I say more stupid than might be expected?
Remember FHB's let's just say for the sake or example 25-35yr olds have had a massive opportunity on the last 18months to capitalise on the labour shortage in many parts of the country and find a much better paying job, also potentially look for housing further out of the centres being able to work remotely. In Wellington alone it has been incredible seeing the money people will pay staff for the work they do - e.g many 60k jobs being offered for 85k+ and many 80k jobs for 110k etc etc, then throw Auckland in the mix. Many will have taken full advantage of this and now many couples have the ability to save faster, or if they got a large pre-approval then the prices have dropped since, allowing them to buy, maybe even throw in some money from the bank of mum and dad for many. Yes in a perfect world they could wait out the next 12months or more and get a more reasonable price, but ultimately the decision comes down to if they can service the mortgage and how their life looks with forecasted interest rates.
As I have been saying, inflation is not all bad.
A lot of the pay rises are only just catching up on the house price inflation not captured by official inflation figures. The most recent round of house price increases are a leg-up again. There's a timing difference between inflation happening and you getting the pay increase to match it, and even then you have to be lucky to not fall behind in real terms.
Well, the average age of first-home buyers rose from 31 to 36 between 2012 and 2020 (source here).
I wonder what the average age is at the moment. How long can the families of generation wait for something as basic as the security afforded by living in their own house?
I reckon one more year should be ample! But yes a lot have waited a bloody long time already...
I agree that waiting one more year is a great idea, if that is possible. But with school kids, you have to consider stuff such as school zones, boy/girl combinations becoming too old to share a room, there's the additional space requirements if another little one arrives, etc.
Also, if the landlord decides to sell and you've been looking to buy, it's pretty inconvenient to go rent somewhere for a year or two while you wait for the market to cool (having already waited a bloody long time, as you mentioned) - although that will probably come with a very large price saving.
Good on those who can get in with a low ball offer.
Also, proportion of 30 - 34 year olds in owner occupied dwellings:
- 1986 = 73%
- 1992 = 72%
- 1996 = 65%
- 2001 = 59%
- 2006 = 56%
- 2013 = 50%
- 2018 = 51%
Yes our 'path to riches' via residential property investment mania is quite ridiculous. Has made life far more difficult for young people than it has needed to be (meaning they have been stuck renting far longer than they would normally have wished to do so) - and is very damaging to the social and financial stability of the nation/economy as a whole.
A result we have a country (and not just NZ because I include Canada and Australia in this as well), that has lost its moral compass and has been lacking wisdom and courage in its leadership in recent decades.
Particularly the amount that goes to rent before they buy. Assume young are buying 10 years later today vs 40 years ago (25 -> 35), then that's $280k of rent at median ($540 per week) before they even take on a mortgage.
What's effectively happened is we've brought forward the post-mortgage yearly earnings/savings potential and given it to multiple property owners for their retirement fund.
Rent for longer, borrow a higher principal amount, pay for tertiary study.
Yes and they benefit has been a higher net worth for older property owning folk at the point of their retirement.
Lest we forget that it has become harder and harder to find a landlord who will keep rents low to have a long term tenant, especially so in Wellington and Auckland where landlords are told repetitively as the value of the house goes up, the rent should be going up as well. The result of this has been of course, more people moving more often until they cannot find somewhere to live in the same city. Also divorces, one buys out the other and value has increased by X amount so the buyout becomes steep, etc.
Yes and some of that age cohort from 2018 were living in a home that was owned and also occupied by their parents. Not so much of that in 1986.
‘But perhaps they are getting a little bit more house for their money than they were at this time last year’
Yes the affordability calculation interest.co.nz use is very misleading. It only works in a rising market (where buying as soon as one has a deposit is theoretically the best option). Buying immediately when one has a deposit may not be the superior option in a falling market.
The affordability calculation appears to assume that a FHBs deposit erodes as the same rate as the housing market so that a 20% deposit is maintained. This isn’t true - by not buying this time last year, FHBs with a 20% deposit a year ago now have a 30% deposit on the equivalent quality/spec home.
As mentioned previously I know FHBs who didn’t by last year who now, despite higher interest rates, can buy a much nicer property than they thought they could in 2021 and require less debt to do so.
"As mentioned previously I know FHBs who didn’t by last year who now, despite higher interest rates, can buy a much nicer property than they thought they could in 2021 and require less debt to do so."
And are they taking the opportunity or waiting it out on the sidelines. Despite the angle that interest.co expert commenters push, there are still thousands of eager first home buyers
In November 2021, interest rates were unsustainably rock bottom. Only one year later and those that waited are not only being presented with more choice, they are getting them cheaper. Given that interest rates and unemployment have further to rise, there are considerable (possibly life changing) rewards in store for those that wait. There were many on here advocating the "Buy Now" in November 2021 and waiting would prove futile. Now look where we are.....
Low grade comment deleted. - GN
🤣 bit strange. I am just waiting for the day that down-spruikers reverse and say that its a good time to buy. I think some have already and are not waiting for the over-hyped claims of -30 percent. Time will tell, as it usually does.
As I've previously commented, I think the end of next year will be a good time to start looking. Even at this point there need be no hurry for FHB's to commit. Low ball offers might reveal more realistic value. My gut feeling is that this will be more of an "L" shaped landing. I think it unlikely the RBNZ would want house prices to take off again on the reduction of interest rates and will therefore introduce DTI ratio. People will therefore think twice before speculating on houses. High gains with minimal work that add little real value to the economy will be a thing of the past.
You are totally incorrect about rising house prices not adding to the economy. It stimulates activity and economic growth
I hope for your kids sakes its not mid next year or they will be competing with others. At that point many people give up, thinking that prices will come down.. IO in 2013. I should not mention him but he is open about it. He could have locked in a purchase price, but instead renting as rents kept increasing for the last 10 years... the house would be part paid off by now as well.. ouch.
By the time my own kids are 40 they should be mortgage free, as wages and salaries increase they can up their mortgage payments. Unless interest rates go skyward which is possible.
Perhaps I have to clarify just for you. Flipping houses off to each other at ever increasing prices adds little more than risk to our economy. This is what has happened. Gently rising at no more than the average inflation rate is okay for you surely.
Try not to use this discussion as a thinly veiled opportunity to perform low grade digs at others...
I will say it again just for you that I personally am happy with a flat real estate market
If you dont understand human nature you will believe that a gently rising market is perfectly doable.
give over with the little digs 🤏 yourself. I think my clearly explained position simply upsets you. 🥂
Hi HW2 - thank you for not resorting to snide remarks and making a reasonable statement. I respect you much more in this manner.
I know of a couple of FHB's who have purchased in the last year - some think they now probably paid too much for the property they purchased, but are also happy to have their own home - so in that respect good result for them.
Most others I know are waiting as they think prices will fall further and their previous 20% deposit is growing considerably as prices fall.
With growing interest rates, increasing inflation and a recession coming waiting should be a smart move. Recessions involve higher unemployment and businesses failing. Where I live so many nice modern lifestyle homes and executive homes are on the market suddenly and they are not selling. Are some people trying to sell before the proverbial hits the fan as their cost of living is suddenly too high. In other words too much debt incurring higher interest rates or about to. Why weren’t people sensible. We were on emergency interest rates.
Doesn't help when the reserve bank was encouraging the banks to 'lend, lend, lend' back in 2020 in order to avoid a depression.
In hindsight, it appears as if our central bankers collectively lost their minds during that time. What we witnessed wasn't wise, nor prudent, but instead a very extreme and rapid response that gave little time to reflect and consider the ramifications of what they were saying and doing.
It is a tough one however as we didn't know how bad things were going to get at the time - but from an outsiders point of view, it made little sense to me as to how dramatic they were becoming because it was a very high risk game they were playing. The consequences of which, it would appear are now coming directly at us. Flooding economies with money during a period when there would be a substantial drop in the production of goods and services was always going to risk creating inflation.
The epic printing of money seemed like a good idea at the time as things were looking pretty grim for a while there. As we look back through the decades we can all see with the benefit of hindsight how Central Bank policy decision can have unintended consequences. In an effort to normalize economies, new distortions are created!
You know when a government agency has a particular name or goal, the outcome is likely to be the opposite.
e.g. the RBNZ being responsible for financial stability, and yet their external influence on the economy is what is creating the instability (by dropping and raising rates too much).
Even they are admiting they are going to manufacture unemployment and recession after pumping house prices to 10x incomes (so we could experience the 'wealth effect'). It is an insane system and way of managing the economy - especially if you say you are doing it for 'financial stability'.
No worries IO. I just get very sick of the over-hyped claims that come up from time to time and with a flourish at the first hint of weakness. Everyone is an expert and some experts were predicting 80 percent falls as you know. You may have been one of them. By contrast if the "spruikers" say anything remotely positive there's a pile in. Like on the weekend when I said that someone buying today might double their money in 20 years. Which is hardly a ground breaking claim.
Thanks
"No worries IO. I just get very sick of the over-hyped claims that come up from time to time and with a flourish at the first hint of weakness. Everyone is an expert and some experts were predicting 80 percent falls as you know. You may have been one of them. By contrast if the "spruikers" say anything remotely positive there's a pile in. Like on the weekend when I said that someone buying today might double their money in 20 years. Which is hardly a ground breaking claim"
Don't think I've ever gone with an 80% fall there HW! Even to me that appears quite extreme.
I have been pretty consistent in saying that 50% falls in real (inflation adjusted terms) is quite possible.....it could be more than that now given what we've just seen the last 2 years. But I don't think we would see 80% in nominal terms....agree that this is quite a crazy call.
Remember that what is "positive" to you (because you have a rental portfolio and children who appear to have purchased at the top of the market) probably isn't "positive" for somebody who doesn't own a home. Falling prices from them is a positve, not a negative.
So despite you thinking they are "wrong", they just simply have different motivations to you.
That doesn't make them a doom gloom merchant (DGM) or a bad person, they just simply want somewhere to live and raise a family without the prospect of financial doom that buying a house at 10x income risks (and that is a real risk!).
Can the below be part of your signature..
'So despite you thinking they are "wrong", they just simply have different motivations to you.
That doesn't make them a doom gloom merchant (DGM) or a bad person, they just simply want somewhere to live and raise a family without the prospect of financial doom that buying a house at 10x income risks (and that is a real risk!)'
Could do but I might get banned for the repetitive nature of the post!
Don't think I've ever gone with an 80% fall ....I have been pretty consistent in saying that 50% falls in real (inflation adjusted terms)
Ok wow that's great and not at all unreasonable
Can you enlighten me what were your previous gut-feeling predictions during the GFC, the late 2010s and when covid hit
"Ok wow that's great and not at all unreasonable
Can you enlighten me what were your previous gut-feeling predictions during the GFC, the late 2010s and when covid hit"
I didn't have a prediction as such for the GFC and the NZ housing market as I was living and working in the US at the time in an unrelated field (with some exposure to NZ property but not enough to have sleepless nights).
It was after watching what happened in the US that I took a real interest in financial bubbles so that I could better understand how so many people got it so wrong. I read widely about them from Shiller to Taleb to Akerlof to Kahneman. I also decided to complete an additional university major (in finance) to better understand asset pricing and risk.
From about 2013 it appeared to me that our housing market was entering a dangerously unsustainble path - we had all of the same indications that have been present in previous property bubbles and they really started to become obvious to me from 2013 when I started following/going to auctions around Auckland....mania would be one way to look at it. Very similar to what I saw in the US in the build up to the GFC in certain areas (it was probably worse in later years in Auckland).
The only way for house prices to do what they were doing and for the cash flows to add up was for the discount rate used to price them was to continue falling - and it did so right until last year. I thought the RBNZ would only be able to sustain the path of the housing market until about 2017/2018....but it has gone longer than that as you know (but only making the possibility of a significant crash even higher). The market was going to go in 2020 but it was masked by COVID and the insane market intervention that we saw (yield curves inverted in the US in 2019 indicating a recession was coming so the market downturn we saw was 99% likely regardless of COVID - yet without COVID central banks and governments would have had less mandate to be as extreme in the response as they were).
From running the cash flows at various discount rates and rates of rent/wage inflation, it appeared to me that a 50% fall in prices was quite possible (real inflated adjusted terms). I just didn't know exactly when this might happen. It was about to happen in 2020, but it looks like it could be happening now. In a deflationary recession I looked like a 50% fall was possible in nominal terms. In a stagflation type recession as we are facing the cash flows are very different and it looks like a 30-40% drop in nominal terms could be an outcome but that is around 50% in real inflation adjusted terms.
Not sure if you know how to, but you should try running that various cash flows for an investment property and use different rates of inflation and potential discount rates (mortgage rates) as a result of that level of inflation. You might find it quite scary. It looks great when the discount rate is falling like it has been - but as soon as the discount rate starts rising, it looks very ugly indeed.
Sales down 43% price’s down 20% stock climbing and rates raising looks very much like this downturn is going to sink house price’s will find a bottom when average wage couples can afford to buy.
If you take the National median house price in the latest REINZ report then prices are down 7.5% since peak.
Pretty much in line with the beginning of Ireland's crash in 2007 which from memory was 7% for Ireland and 9% in Dublin. Except we have much wilder figures e.g. 12.7% in Auckland, 17.2% in Wellington. But we're not Ireland, we're diffrunt.
Time will tell, it usually does
NZ is very different to Oiland and currently has two job vacancies for every unemployed person (quote from A Orr). The restart of the tourism sector, will help/add further pressure.
You never know, we might sail through this. We usually have some part of the economy struggling while another part keeps chugging on.
Very good and quite surprising article Greg.
The volume leads the price. Increasing volumes -> Increasing price trend IMO.
No reason at all to buy a house now if you can. Just watch the prices fall, watch the investors and speculators squirm and buy once they are desperate for the psychological release of selling the property.
What happens when ocr peaks at 5.5% ? Blood baths on the streets. All the cheap money 2020 and 2021 is over. Imagine paying 7-8% interest on 800k loan...
No thanks.
Any first home buyers please be aware. If someone here says that they expect the market will pick up next year, then they probably mean early next year but will never tell you that, if they are in the market themselves.
I very much doubt that, might need to shake that crystal ball once more.
You can safely take 6 months off any forecasts. Meanwhile the down-spruikers are going to put out negative messages until they're settled in their new home. One thing everyone seemingly agrees is that the market is not dead and buried for all time
I suspect we may be on the cusp of another significant fall in prices, 15-20% in the next year. Nothing goes up or down in a straight line, and the trend is clear. No significant policy changes on the horizon until a change of government, and even then the most important direction will come from the Fed. Bottom line is that NZ house prices are still well out of line with incomes.
Well 2132 first home buyers say you are wrong. Add to that the probably tens of thousands of others since November 2021
FHB's are more resilent because they are the true buyers of the housing market, to raise their families in. But many people on this forum would still wish for these FHB to fail in all aspects, mainly because they missed their opportunity to buy and/or they simply want things handed to them for free. Unfortunately life requires hard work, dedication and discipline. Sorry if no one taught these morals to you.
Instead of attacking one another, maybe you should go after people like the government and banks who are the true abusers of your cause. They are the ones calling the shots and screwing up everything and everyone.
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