At times they've been almost squeezed out of the New Zealand housing market.
Wannabe first home buyers (FHBs) have had to look on as investors and existing owner-occupiers used vastly superior financial muscle to force their feet in the door first, before slamming the door in the faces of the would-be first time buyers.
But at the moment, the FHBs are enjoying a relatively free run.
As we earlier reported, according to the latest Reserve Bank monthly mortgage statistics, the FHBs are gaining a record share of the mortgage advances at the moment, with just under a quarter of the total advanced going to them.
However, they are buying into a down market. In the 12 months to May 2023 the Real Estate Institute of New Zealand (REINZ) says the median house price has fallen by over 8%.
So is it brave or is it foolish of the FHBs to be taking such a leading role in house buying at the moment?
Actually I don't think it is either brave or foolish.
It's just FHBs doing what FHBs do in this country. And I offer no opinion as to whether it's a good idea to be buying at the moment or not. Because I don't know what's going to happen to the market. Nobody does.
As an example of this, back in 2020 when it looked like the pandemic world was falling in, and presumably taking the house market down with it, I opined, wistfully, of how time had not been kind for FHBs.
Well, fast forward to 2023 and I just indulged in a bit of back-of-the-envelope arithmetic. And this suggests as an example that an FHB who got into the market at the then median price in February 2020 ($635,000) and with 20% equity in their home would have forked out $127,000 for a deposit.
As of May 2023 REINZ figures say the median price is now $780,000. Assuming our FHB had paid off maybe $30,000 in principal since buying, they might now have around 40% equity (over $300,000) - and that's after the falls in the market last year and this! So, you can never tell!
I think the first home buyers taking on the current housing market are doing so because, well, they want their own house. That's it. That's all they ever want. The state of the market is neither here nor there for them. The money is neither here nor there. The prime consideration is a place to call your own. Everything else is secondary to that. They are just doing it.
And so they are borrowing a record share of the total mortgage monies being announced at the moment.
Now, yes, we can talk about how quiet the market is at the moment and so the FHBs have gained a record share of a not large amount of mortgage money, but the fact is, in absolute terms the FHBs are going for it far more so now than at any stage since the RBNZ started publishing this data series in August 2014.
In August 2014, for example there was a total of $4 billion committed to for new mortgages. Of this the FHB grouping took just $392 million - a measly 9.7%. At that time the investors had a 29% share.
Compare that with May 2023 when the FHBs borrowed over $1.4 billion and accounted for 24.3% of the total. Investors meanwhile took 16.9%.
The other point that can be made is that obviously mortgages are a lot bigger now than they were, so, is it perhaps more meaningful to look at the number of mortgages committed to rather than the amount of them? Well, okay. In August 2014 the FHBs took out 1277 mortgages. In May 2023 the number was 2588 - more than double.
Was the housing market bad in 2014? No. According to the REINZ the median price rose over 5% during the course of that year. Not the sort of raging bull market NZ can produce, but not a down market.
However, anybody questioning why the FHBs might be climbing over themselves to get into a falling market, but weren't actively participating in a rising one is on the one hand missing the real point and on the other helping to demonstrate the great contradiction of the housing market.
I'll explain the second point first: A fundamental problem with the housing 'market' is that it pushes together buyers who have enormously different motivations. At the basic level there's people who simply want a roof over their heads to call their own. But effectively going up against them are a sizeable number of people who see houses and land as purely an investment. It's contradictory and it doesn't work well.
You can make a possibly slightly absurd comparison by asking: What if people wanting to buy bread at the supermarket suddenly found themselves going up against a whole bunch of other people who've decided that loaves of bread will go up in value if they are stored for a few years, so these other people start buying them up large? The result - bread gets even more expensive than it already is.
So, yes, perhaps absurd example, but hopefully it makes the point that there's something a bit absurd about the housing market too - that folk who simply want their own roof over their heads are going up against other folk looking to make money.
This is not to say that an FHB doesn't hope to make money - eventually - but that's not the prime motivation.
This therefore is the 'real point' I was referring to above. FHBs haven't got some sort of death wish to lose money. They just want a house. So, why are they so active in the market now? Well, they want homes to call their own - and they have actually got the market, not to themselves as such at the moment, but they've certainly got some room to move.
To go back to 2014, it's well worth remembering that the Reserve Bank's 'speed limits' on high loan-to-value ratios (LVRs) lending were new, having been introduced in late 2013.
In a review of the LVR regime published in 2019, the RBNZ conceded that the original iteration of LVRs "disproportionately restricted" purchases of houses by first time buyers.
It was only after the RBNZ thumped a 40% deposit requirement on to investors in mid-2016 (when the investors at that time were taking a 35% share of committed mortgage monies) that the FHBs started finding their way in the market better and grabbing a better share of the spoils.
For the moment, in 2023, the investors don't see value in the market and are sidelined and the owner-occupiers are not very active either. So, the FHBs have the floor.
But, still, prices have gone down and while economists are suggesting the bottom may have been reached, we haven't seen concrete evidence of this yet. So, why don't the FHBs 'wait' like the investors and the other owner-occupiers?
This question again goes back to the whole issue of the housing market as a place to find a home versus as a place to find an investment. Clearly investors don't see the market right now as a good investment. For the FHBs, it doesn't matter.
New Zealanders place a huge amount of emphasis on having their own home. It's an emotional need. Any say, 28-year-old who is 'waiting' to buy a house is doing just that. They are not deciding whether to buy or not - they've long ago made the decision they WILL buy, it's just a question of when. Oh, yes.
They won't satisfy that emotional need till they've bought one - so, actually why wait at all? If a wannabe FHB is adamant in his or her own mind that they WILL buy a house then waiting is only a pathway to frustration.
Which probably explains why the FHBs are keen to get into the market boots and all now. Regardless of how the market's looking.
The key risk for the first time buyers - and this particularly applies to those who got in in 2020 and 2021 at higher prices than now prevail - is if we see a meaningful rise in joblessness. That's going to be crucial, because that would force recent buyers to potentially have to sell - and crystalise loses. Negative equity can be tolerated providing a buyer is working and paying the mortgage. But if they lose their jobs?
In the meantime, the FHBs will keep buying...
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