First home buyers appear to be taking a cautious approach to the current housing market with fewer of them taking out mortgages and the average amount they are borrowing in steady decline.
According to the latest Reserve Bank figures, 1520 mortgages were approved for first home buyers in February.
That was the lowest number of mortgages taken out by first home buyers in the month of February since 2015, and was down by 10% compared to February last year and -35% compared to February 2021.
However the overall housing market has declined by much more over the same period.
The REINZ recorded 3964 residential sales in February, down 31% compared to February last year and -52% compared to February 2021.
Those figures suggest that while first home buyers are less active in the market than they were a couple of years ago, other types of buyers such as investors and those moving up the property ladder have pulled back far more.
Consequently, interest.co.nz estimates that first home buyers' total share of the housing market has steadily increased from 28% in February 2021 to 38% in February this year.
The figures also suggest they are being more cautious in the amounts they are paying for a home and the amounts they are borrowing.
Interest.co.nz estimates that the average amount paid by first home buyers for a home of their own in February was $646,000.
That's 14% more than the REINZ's national lower quartile selling price in February and 15% less than than the national median price, suggesting their activity remains concentrated at the lower-priced end of the market.
The estimated average price paid for a home by first home buyers has now fallen for five consecutive months and in February was $72,000 lower compared to its peak of $718,000 in April last year.
So it's no surprise that they are also borrowing less.
Based on the Reserve Bank figures, the average size of mortgages approved for first home buyers in February was $536,000, down by $59,000 from the May 2022 peak of $595,000.
The number of first home buyers taking out riskier low equity loans with less than a 20% deposit remains relatively steady on 28%, which is more or less where it's been for the last six months.
But that's down significantly from the frenzied market conditions of mid-2021, when more than a third of loans being approved for first home buyers had less than a 20% deposit.
A regional breakdown of housing affordability for first buyers is available in interest.co.nz's monthly Home Loan Affordability Report.
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39 Comments
But that's down significantly from the frenzied market conditions of mid-2021, when more than a third of loans being approved for first home buyers had less than a 20% deposit.
You would therefore assume most of these are underwater, or flat at best......
If they can afford their mortgage and don't have to sell for the next 3 to 5 years then they will be OK.
On the flip side - I'm starting to see loads of properties coming on the market that were purchased in late 2020 or 2021 (right at the peak). But these properties, that I'm keeping an eye on, are in the 1m to 1.3m range. Based on the data they are probably worth $260k less, on average, so I have to assume these are distressed sales.
If they don't have to sell for the next 30 years they'll still be ok. That's all a lender is concerned with when they make a loan - The Capacity to Repay. (NB: The collateral isn't the important bit. It's the income to make the repayments and longevity of such that matters to a lender. Call it DTI if you like. And that's why loans are getting harder to get, and will continue to be so)
And those who do have to sell (your following sentence) will set the resale price for everyone else that might either have to or want to sell.
BW one big problem the banks have is that many of the recent fhb's haven't been able to save.pay the rent yes or mortgage, but save, no.and thats where the bank of mum and dad came in.many will get through, some wont
But its the same scenario for landlords who have not been able to build any cash surpluses, but have used newly created equity in the form of increasing values.they have no buffer for the increased rates and stand just as much chance of ending out on the street
I just saw a landlord post his numbers...but he hasn't included capital repayments.how much longer can they keep this game up?
I get a sense the next thing to hit the market is job losses....and hefty ones at that.
corporate earnings will come down for many and rates on debt will go up.what happens if head offices start selling shares that they had bought back,think fletchers.anyone know what holdings they own?
One of the big red Banks is rejecting 95% of mortgage applications.
Any idea what % they were rejecting 2019 - 2021 ?
Starrider
What is the source of your data?
It’s just that I’ve not seen this data made available previously and it would surprise me if the “big red bank” would release such data.
Senior management. Not published data.
Lets say you're correct that 1 in 20 is accepted. That unsatisfied demand should fill you with fear
Lots of demand for refinancing, and the banks are not allowing it.
Also loads of deluded people asking for crazy large mortgages, that were the norm in 2020 and 2021, but the stress test is at 8%. It's a reality check for vendors, more than anyone else.
Slowly but surely. Who knows how much further this thing has to go.
read between the lines on FEDs comments, A, the interest rates have peaked, B, it will hold at current level for a while, C, there will be no interest rates cut on 2023.
So I think house prices will be still on a down curve, but perhaps not too much downer. then will be depending on how interest rates go on 2024.
I can see fed raising further, I guess time will tell though
Thats terrible news :)
Based on the Reserve Bank figures, the average size of mortgages approved for first home buyers in February was $536,000, down by $59,000 from the May 2022 peak of $595,000.
OK. So 10% slashed from the marginal buyers' potential to pay. Think of a bell curve and this segment aiming 4 out of the 6 standard deviations from the mean in terms of price. 10% sounds like chump change. But that's just the loot. Think of all the other factors. Nobody wants to overpay in these kind of markets. You'd be madder than a cut snake if you did.
Who actually has the money right now to purchase?
Seems strange to bother buying unless pressed to it. Wait six months or a year and save 10-20% on current prices. I don't see prices stabilising till we hit about 2016/2017 prices.
That cute little 2bdrm Ponsonby villa printed virtually its 2017 sales price last week....
I do, although I will wait until the election at least before making any decisions to purchase
Now that was just copy, paste
If you had a mortgage of 800k at 3% fixed it would have cost $770 per week now at floating rate of 7.99% paying around $1350 per week as people have to refinance from fixed rate it will cause huge financial difficulties. add on top inflation not looking good for housing market if you can buy now best to hold off as price’s are going to tumble a lot quicker over coming year and when they do bottom out they will probably not be climbing again for years.
Dont forget the reserve bank is targeting a lower employment rate... so those highly leveraged who are unlucky enough to lose their jobs will be forced to sell into a market that is continuing to fall.
I reckon best deals will be from very distressed sellers in mid 2024... plateau for a 2-4 years after that then maybe some shoots
First home buyers are paying less for their homes and taking out smaller mortgages
Hardly surprising when house prices are dropping.
First home buyers appear to be taking a cautious approach to the current housing market with fewer of them taking out mortgages
Little to do with being "cautious", it's simply because FHB's can't afford the much higher interest rates and banks have stricter lending criteria.
First home buyers' total share of the housing market has steadily increased from 28% in February 2021 to 38%
A result of fewer investors buying, precisely what is being targeted by the end of interest deduction for investors.
I do think some are cautious. More of the younger gen are well aware of the current financial system and how it all works. It's not looking pretty for property.
I have enough now for a deposit but still not entering property, not in NZ at least.
And it's significantly cheaper to rent right now.
I know someone renting $650 per week -a 120sqm 3 bed house. Value $800k.
If you buy with 20% down ($160k) your mortgage is $640k. 30yr mortgage @ 6% interest = $885pw + $50pw insurance + $60pw rates + $50pw maintenance.
Total ownership costs = $1045pw minimum.
Or you keep renting for $650pw and keep that deposit in the bank and pocket the $100pw from interest after tax (5%) and also save $395pw difference in outgoing cost. So in this situation they are +$500pw (+$26k per year) ahead compared to buying. So next year their deposit is going to be $186k without lifting a finger.
Which is why I think house prices have a long way to go down unless interest rates go down. The current scenario makes no sense to FHBs or investors.
You can rent 2 bed for $650 in Devonport. Property valued in excess of $1.4M.
Imagine 2 people in 1995 talking:
One says I am buying that house for 300k. He thinks, oneday I will earn a nice income that supports me in retirement. It might even be worth a bit more. And now, worth 1.4million, and earning a princely sum $34,000 per year he can retire.
The other says I am renting that house for 180pw. He thinks, why would I buy when I can rent "So Cheap" all the rest of my life... I'm free from entanglements and responsibilities. And now, Paying over $50,000 of before tax income he has to keep working.
I know someone renting a 130sqm stand alone 3 bed house within walking distance of a very nice urban beach in Auckland for 650 a week. That's lower mid quartile for the area. CV for 2021 was $1.3mil. They're paying roughly half the cost of a 6% mortgage at 80% borrowing for the same quality.
Nuts
And yet they'll still whine about how they are being ripped off by their landlord. I wonder how many FHB fall into this trap, buying a house without understanding just how much its going to cost them, and how much more expensive it is than paying rent. Its these people who will be the ones who end up defaulting on their mortgages or going hungry and cold as they have no money to pay their other bills.
Case example, with recent fhb on low pay with 3 kids paying over ten percent to non bank lender
More job cuts and the market will start to load up with sales or foreclosures.
We are playing Jenga with our economy and slowly pulling out bricks.
A correction to the heading: First home buyers are paying less for their extremely overpriced homes and taking out smaller massive mortgages
Nice work
Meanwhile, over the ditch, house prices are back on a tear.
"CoreLogic’s daily dwelling values index results for March are out with values rising 0.8% across the five major Australian capital cities:
It was the first monthly rise in values since April 2022, and the largest rise since January 2022.
The increase in values was driven by Sydney, where prices boomed by 1.4%. Values also rose by 0.6% across Melbourne and by 0.5% across Perth:"
Must be all those Kiwi's moving over eh?
Dead cat bounce?
Won't be the last, many people perceive now as a good time to buy as they don't understand that holding off is better. Lingering FOMO, it's good to flush out those weak hands.
The amount of Cope and Seethe by the few Speculators who remain on this site makes up for the disappearance of the rest.
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