First home buyers market share hits record high

Thursday, 9 November 2023

To make their tax plan work, the National Party has to sell $4.9 billion worth of homes to foreign buyers. CoreLogic's Nick Goodall talks about effects of that on the market.

First home buyers have never had such a big share of purchases, but they may face more competition soon, CoreLogic says.

The property research company’s latest First Home Buyer report shows first time buyers were responsible for 27% of all purchases nationwide over the July to September quarter.

That was a record quarterly high, and up from 25% in the last report in May.

Over the year to date, first time buyers had a 26% market share, which was well above the long-term average of 21.8%, based on records going back to 2005.

But the total number of sales remained below past norms, although sales volumes have been rising for the past five months, according to the report.

Davidson said despite some key challenges for all buyers, such as high interest rates, first home buyers were still finding a way to get into the market.

They were using banks’ low-deposit lending speed limits, tapping their KiwiSaver for a deposit, securing First Home Grants or First Home Loans, or compromising on the size or location of their home, to do so, he said.

“It highlights the continued strong appeal of having a ‘foot on the ladder’.”

First home buyers accounted for 27% of all purchases nationwide over the third quarter.

First-home buyers’ market share was above average in all six main centres, but they had the highest share in the Wellington region with 33%, up 4% on the long-term average.

In Auckland, Christchurch, and Dunedin first home buyers market share was 5% higher than the long term averages of 24%, 23% and 22% respectively, and in Hamilton it was 6% above an average of 24%.

In Tauranga, first home buyers had a 21% share, but that was up 5% on the long-term average.

First-home buyers' share of the market remained strong in most of the other 12 urban centres monitored, but it was biggest in Invercargill at 32%, 10% above the long-term average.

In contrast, Queenstown first home buyers were struggling, with a market share of only 13%, down from a long-term average of 15%.

Davidson said that generally the buyer group had benefited from the downturn in prices over the past 18 months, with the median price they paid down to $690,000 this year from $720,000 in 2022.

The typical first home buyer often entered the market above the 'bottom rung' of prices, rather than starting from the bottom, he said.

“For example, $690,000 is lower than the median price paid across all buyers at $762,500, but it’s significantly higher than the lower quartile across all buyers at $565,000.”

Of the main centres, it was Auckland first home buyers that paid the most with a median of $875,000 in 2023, $107,000 less than the all-buyer median of $982,000.

CoreLogic NZ chief property economist Kelvin Davidson says tax changes for investors under the new government could mean more competition returns to the market.

In Tauranga, Wellington, and Hamilton, the median first home buyer price was between $700,000 and $750,000, while it was $600,000 in Christchurch, and $530,000 in Dunedin.

Of the smaller centres, Whanganui and Invercargill had the lowest first home buyer medians at $425,000 and $400,000.

Davidson said many key market factors still favoured first home buyers, and it would not be a surprise if they held onto an above-average share of purchases over the next six to nine months.

“After all, we do not expect runaway growth in house prices for the foreseeable future, especially if or when caps on debt-to-income ratios for mortgage lending come into force next year.”

But affordability remained a handbrake, as did high mortgage rates, and tax changes for investors were likely under the new government, which meant some competition might re-enter the market, he said.

“Low rental yields and high mortgage rates, hence high ‘top-ups’ from other income sources, could prevent a strong return from investors. But this report probably marks a line in the sand for first home buyers.”