First-home buyers quietly returning to the market

Despite rising interest rates, first-home buyers appear to have passed “peak pessimism” and are slowly returning to the New Zealand property market, according to new data.

According to CoreLogic, first-home buyers accounted for 25 per cent of property purchases in August, their highest market share since December last year, and up from a low of 21 per cent in March.

CoreLogic NZ Chief Property Economist Kelvin Davidson said despite some headwinds for first-home buyers, many were still looking to enter the market.

“The continued dampening effect of the loan-to-value ratio rules on first-home buyers will have prevented some would-be buyers from making a purchase, while others have no doubt held back willingly, with the aim of getting a cheaper price (and/or better house) later down the track,” Mr Davidson said.

“However, others have clearly remained keen to buy, perhaps recognising ‘picking the bottom’ of the market is difficult, and in the meantime, they might also miss out on a house they really like.

“The easing of the CCCFA (Credit Contracts and Consumer Finance Act) rules in recent months (with more to come in 2023) may have helped too, alongside the raising of the price caps for First Home Grants and the removal of caps for First Home Loans.”

The recent increase in the cap for KiwiBuild homes might also allow developers to bring forward more of these properties, improving options for would-be first-home buyers, Mr Davidson said.

According to CoreLogic, there were about 5250 deals (via agents and private) in August – compared to the long-term average for August (over two decades) of about 7800.

Mr Davidson said the data suggested some buyer groups – especially first-home buyers – had passed “peak pessimism”.

“First-home buyers seem to have been taking a few more opportunities in recent months – potentially signalling a change in mood/mindset about the outlook, and adding to the prospects the wider downturn may end in 2023,” he said.

Meanwhile, the market share for cash multiple property owners (MPOs) has also risen, up from about nine to 10 per cent late last year, to 14 to 15 per cent.

“To be fair, some of these buyers may have just rejigged the debt on other properties in a portfolio, meaning that the latest purchase isn’t ‘cash’ per se,” Mr Davidson said.

“But even so, in this environment, where mortgages are costlier and harder to get, it stands to reason that cash buyers – potentially seeing bargains – would have a higher share of the market.”

On the flip side, mortgaged MPOs have seen their market share fall, dropping to 21 per cent in August – a record low. 

“Generally speaking, this buyer group is facing pressure from the pincer movement of low rental yields (and slowing rental growth) and higher mortgage rates, as well as the stringent 40 per cent deposit requirements,” Mr Davidson said.

“It’s probably also worth noting the returns on potential alternative assets, such as term deposits, have risen too.”

Mr Davison said relocating owner-occupiers, specifically, people moving house, had also seen their market share fall. 

“It still requires quite a bit of extra money to trade up from a three to a four-bedroom property, which remains a barrier for some movers,” he said.

“But the change in market circumstances (such as less bridging finance) and the return of more conditional offers – such as needing to sell before committing to a purchase – will also be slowing things down and perhaps stopping some deals altogether.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.