The proportion of first-home buyers relative to the rest of the market has improved, data shows
First-home buyers have shown remarkable resilience compared to other buyer groups, despite buying activity among the market newcomers plunging to its lowest level since 2011, the latest CoreLogic NZ report showed.
According to CoreLogic’s biannual First Home Buyer report, around 3,750 first-time purchases were completed in the third quarter of 2022 – the lowest figure for that quarter of the year since 2011.
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The result was unsurprising though, said Kelvin Davidson, CoreLogic NZ chief property economist, considering continued affordability pressures, tight lending rules, and higher mortgage rates.
Davidson noted, however, that despite the low volumes, the proportion of first-home buyers as a share of all buyers had improved throughout 2022.
“All buyer groups are being hindered to some degree by those same factors, and actually FHBs have ‘held on’ relatively well in this environment,” Davidson said. “In fact, the proportion of FHBs relative to the rest of the market has improved, increasing from 23% over the first half of 2022 to closer to 24% in the third quarter. That’s higher than the long-term average FHB market share, which is around 22%.”
Davidson said a flicker of confidence was re-emerging among first-home buyers even in a tough credit environment.
“We suspect some of these recent buyers had previously held back as prices fell but have now started to see value again – maybe even some genuine ‘bargains’ – and are prepared to make a purchase even if house prices haven’t fully found the floor just yet,” he said. “However, with inflation now looking to be more of a problem, the official cash rate headed higher, and home loan interest rates rising again, typical mortgage rates are likely to rise towards 7% or more over the coming months. That would be a stern test for many would-be FHBs, especially since the fortnightly cost to rent is starting to look comparatively cheap.”
A simple comparison of fortnightly rents versus mortgage repayments showed that renting was significantly cheaper as mortgage rates have spiked and rental growth has cooled, with savings ranging from $927 in Auckland to $401 in Dunedin, and $564 nationally.
CoreLogic data also showed that standalone houses now represent a slightly higher proportion of all first-home buyer purchases, as opposed to apartments or flats, at 74% in Q3 2022 compared to 73% for the same period in 2021. What these figures suggest, Davidson said, was that the wider market downturn has started to make larger dwellings more accessible for first-home buyers.
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The price first-home buyers are paying to enter the property market has started to fall, with the median now at $720,000, down from $750,000 in Q2, and $759,000 in Q1, which Davidson noted mirrors the current buyer’s market conditions.
“The median price of $720,000 being paid by FHBs is lower than it’s been for some time but still significantly higher than the lower quartile (bottom 25%) across all buyers, of $580,000,” he said. “In other words, the ‘typical’ FHB doesn’t always enter at the bottom of the market and work their way up.”
In recent months, Auckland, Hamilton, Tauranga, wider Wellington, Christchurch, and Dunedin have seen decent strength in first-home buyer market share, especially Hamilton and Wellington, where the latest share of figures are around 5% higher than the long-term average, CoreLogic reported.
Each of the main centres also recorded an FHB median price in Q3 2022 that was lower than for all buyers, Davidson said, with Auckland posting the highest median FHB price paid of $940,000, and also the largest gap relative to all buyers – $163,000 less than the all buyer median of $1,103,000. Tauranga’s FHB price paid just topped $800,000 in Q3, with Hamilton and Wellington around $750-$760,000, and Christchurch and Dunedin had less than $600,000.
At the heart of this downturn, Davidson said, was the tougher lending environment, just as it also played a key role in the post-COVID upswing.
Adding to the pressures were tight LVR rules, the restrictions of the CCCFA legislation, curbs on high DTI ratio mortgages, and sharply higher mortgage rates.
These all resulted in a decline in the total number of properties being purchased by each buyer group, but first-home buyers have managed to hold on relatively well in terms of market share.
“FHBs have no doubt benefitted from improving housing affordability as prices have fallen and in recent months, we’ve seen their relative presence in the market increase a little,” 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 represented one in four buyers. To see them picking up market share closer to that figure again between July and September shows their resilience and determination to get into the market.
“This is occurring when mortgage rates have risen sharply and rent increases have slowed, with many areas now cheaper to rent than pay a mortgage. This straightforward comparison certainly highlights that most FHBs are likely to be purchasing for reasons other than simple financial drivers, such as stability of tenure.”
