First home buyers making hay while property market’s muted

Thursday, 7 November 2024

A weaker property market has seen first home buyers across New Zealand pay less in the first nine months of this year than last year, and slightly more of them are leaping on favourable market conditions to buy bigger, or standalone, houses.

Data from Core Logic’s First Home Buyer report for the third quarter of the year published on Thursday showed the median price paid for a first home between January and September 2024 was $685,000 - down from $695,000 in the same period last year, and $715,000 in 2022.

And bigger properties - standalone houses - comprise a slightly bigger share of the market, at 73% (compared with 70% last year).

The data gave lie to the idea first home buyers get into property on the bottom rung. While those getting into the property market for the first time were certainly paying less than the overall median price of $760,000, they were on average paying more than the $562,950 forked out by the bottom 25% of all buyers.

Core Logic NZ Chief Property Economist Kelvin Davidson said despite a seemingly rosier buying ecosystem, affordability constraints had still forced first home buyers to change their behaviour over time.

“If you go back to 2019 and 2020, standalone houses accounted for more than 75% of first home buyer’s purchases, suggesting that as affordability constraints have intensified over the past few years, first home buyers have been prepared to change too,” he said.

But the good times for home-buying newbies may not last forever, Core Logic warned.

“Looking ahead, there’s a sense that mortgaged investors may start to become more active again in the next 12-18 months, meaning that first home buyers might not have things all their own way in 2025” the report authors said.

“Nevertheless, it’s entirely possible that lower interest rates will still continue to drive more first home buyers in absolute terms, and it wouldn’t be a surprise if a good chunk of the 20% allowance for banks to lend to owner-occupiers outside the debt to income ratio restrictions was also set aside for first home buyers (particularly in the pricier regions of New Zealand).”

The Post’s Miriam Bell reported this week that experts have said property buyers more than any other group would feel the impact of the Reserve Bank’s debt-to-income ratio (DTI) rules on mortgage lending much sooner than previously expected, with first home buyers perhaps remaining relatively unscathed because of their traditionally lower level of debt.

Backdrop

Core Logic’s previous First Home Buyers report was published in May, when the data showed that a small recovery in property values at the end of 2023 had changed course and still-stretched affordability, an ‘overhang’ of available listings on the market, and falls in employment led to a 5% drop in national values from the beginning of the year.

In the most recent two months has seen this slightly change course again thanks to inflation coming down, even while consumer confidence remains constrained thanks to lower job security. Statistics out yesterday showed third quarter unemployment, while less than expected by most economists, was largely driven by negative factors: fewer people bothering to look for work and still thousands of others having left the country.

But Core Logic researchers said on balance it seemed “pretty likely that the downturn in property values that we’ve seen for most of 2024 could be about to come to an end, although at the same time a sudden or strong upturn doesn’t appear particularly likely for as long as jobs are being lost.”

Through it all, first home buyers have remained a significant proportion of property buyers, the researchers added, with neither the austerity environment nor the Government’s removal of the First Home Buyer Grant scheme much of a restraint on purchasing.

Over the third quarter of 2024, first home buyers comprised almost 27% of all property purchases, and have been consistently above 25% since early 2023 - and above their own long term average of 21%.

Geography

The Core Logic report showed Wellington had the largest proportion of first home buyers in the country, at just short of 35% of purchases, while Tauranga had the fewest in the mix, at just 23% of all purchases. But in most places around the country the percentage of first home buyers had increased.

Drilling further down into the data shows that while outside the main centres standalone houses continued to predominate, at above 80% in most places, in Auckland, Wellington and Christchurch, the number of standalone houses had dropped (in Auckland, down to 58% versus average of 67% for example).

While first home purchases of standalone houses in big centres tends to be lower anyhow, the drop could be attributable to “better affordability for smaller dwellings – but also that the construction boom has simply meant more availability of other property types, such as townhouses or apartments, in Auckland, Wellington, and Christchurch,” researchers said.

While the overall median purchase price of a first home was$685,000, as above, that obviously varied by area - Auckland’s median was $885,000 so far in 2024, for example; the first home median was $791,500 in Tauranga, $751,500 in Wellington and $690,000 in Hamilton (and lower still in Christchurch and Dunedin.)

In urban areas, Queenstown’s median first home price was a whopping $1,127,718, while Kapiti Coast, Napier, Nelson, Whangarei, and Hastings were all in the $600-$700,000 bracket, and less than $500,000 in Whanganui and Invercargill. In regional New Zealand, Western Bay of Plenty’s median first home price was the highest at $769,500 so far in 2024, followed by Selwyn at $744,000.

Timaru and South Waikato were down near the bottom in terms of median prices, at $450,000 or less.

The researchers pointed out that though mortgage rates are now falling, rents themselves have also flattened off, and “the gap between paying the mortgage versus paying rent remains high – currently a difference of around $366 nationally per fortnight, although that ranges around the main centres from $270 in Dunedin (mortgage minus rent) up to around $450-$470 in Tauranga, Hamilton, and Wellington, and almost $720 in Auckland.

“This straight-forward comparison (with rent significantly cheaper) certainly highlights that most first home buyers are likely to be purchasing for reasons other than just the simple financial drivers – such as stability of tenure.”