First home buyer activity falls away in New Zealand

New Zealand’s first home buyer activity has continued to decline as higher mortgage costs start to bite, according to a new report.

CoreLogic’s bi-annual First Home Buyer Report shows first time buyers made up 22.5 per cent of all buyers in the first three months of 2022, down from 26 per cent in the second half of 2021.

It was the lowest level of first home buyers since 2017.

CoreLogic NZ Chief Property Economist Kelvin Davidson said despite the wider housing market slowing down, first home buyers had not been able to take advantage of weaker prices and less competition.

“Some would-be FHBs may have willingly pulled back from the market with the intention of trying to enter the market at a lower purchase price later,” Mr Davidson said.

“However, we suspect that’s only a small part of the explanation – it’s much more likely that their market share has fallen on the back of the tighter credit environment and the increased cost of servicing a mortgage.”

The number of purchases has also fallen to the lowest level since 2014. 

Mr Davidson said it wasn’t surprising to see first home buyers drop off given the current level of housing affordability.

“Mortgage interest rates have risen sharply and the tightening of lending criteria have bitten hard for those with low deposits and/or less disposable income,” he said.

“Indeed, the halving of the loan-to-value ratio speed limit for owner occupiers from 20 per cent to 10 per cent in November last year has significantly hampered first home buyers with the changes to the Credit Contracts and Consumer Finance Act not helping either.”

The report found 73 per cent of first home buyers purchased a house, which was down from 80 per cent in 2019, suggesting many had to compromise on space.

The median price paid first home buyers paid in Q1 2022 was $752,007, up from $680,000 in 2021, but still well below the median of $860,000 for all buyers so far this year. 

Over the past four to five years, the first home buyer price remained stable at around 91 to 92 per cent of the price paid by all buyers. 

In 2022, this ratio slipped to 87 per cent, a sign Mr Davidson said suggested first home buyers haven’t been able to keep pace with the wider market.

The number of first home buyers fell in multiple markets including Auckland, Hamilton, Tauranga, wider Wellington (combined City, Lower Hutt, Upper Hutt, Porirua), Christchurch, and Dunedin. 

Each of the main centres saw first home buyers pay a median price lower than the overall median.

The gap was most prominent in Auckland, where FHBs paid a median of $1.04 million compared to the overall figure of $1.23 million. 

Wellington first home buyers paid the second highest median price ($890,000), followed by Tauranga ($800,000), with Hamilton around the $750,000 mark.

First time property owners in Christchurch and Dunedin paid about $600,000 to enter the market.

“Some FHBs will no doubt be able to secure some bargains in a market where the supply/demand balance has tipped in favour of buyers and the looming relaxation of the CCCFA rules may help too,” Mr Davidson said.

“But this won’t be enough for plenty of others, who will continue to struggle with the loan-to-value ratio rules and the higher mortgage rates. 

“We anticipate the overall proportion of FHBs in the market may stay more subdued this year.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.