First-home buyer activity falls to 2014 levels from 26% to 22.5% market share

First-home buyer numbers dropped by more than 2500 purchases last quarter as rising mortgage interest rates and tighter finance take a toll.

Kelvin Davidson, CoreLogic NZ chief property economist, said the number of first-home buyers fell from the record high 26 per cent share of the market in last year’s final quarter when 6557 properties went to people buying for the first time.

In terms of the number of purchases, first-home buyer (FHB) activity in this year’s first quarter was at its lowest since 2014.

In the March quarter, they only accounted for 22.5 per cent or 4019 buyers, he said, down 2538 purchases between the two three-month periods.

The QV House Price Index also out today showed national values down 2.2 per cent in the past three months.

The Reserve Bank said first-home buyers borrowed $17.88 billion across 32,493 separate loans last year. That borrowing was nearly $8b higher than in 2017, when first-home buyers borrowed $10b across 23,702 loans.

The bank’s research, released to the Herald under the Official Information Act, showed 49 per cent of the people who bought their first home last year during the market peak could face “serviceability stress” if interest rates hit 6 per cent. Interest rates are nudging 6 per cent at some banks.

CoreLogic said today first-home buyers were most active in the final quarter of 2020 when they made 7939 purchases.

Some would-be first home buyers may have willingly pulled back to wait for prices to fall, 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,” he said.

The drop occurred within the overall market slowdown, with the volume of all types of sales down.

The proportion of FHBs in the market for the same period has fallen to 2017 levels, except for the lockdown-affected period in early to mid-2020.

“Of course, that doesn’t come as a major surprise, given housing affordability is still very stretched with between 11 and 12 years required to save a deposit in some areas of the country,” Davidson said.

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

A total of 73 per cent of FHB purchases in Q1 were houses, 18 per cent flats and 3 per cent each were apartments, lifestyle and other types of properties.

In 2019, standalone homes represented about 80 per cent of FHB purchases, CoreLogic said.

A FHB requires an average of 11.5 years to save a home deposit. Auckland FHBs spent a median of $1.04 million in Q1 compared to those in Invercargill who spent $425,000.

FHBs paid a median $752,007 in Q1, up from $680,000 in 2021, but well below the $860,000 median paid by all buyers to date this year.

QV said today the average Auckland residential value is now $1,492.807, falling 3.1 per cent in the latest quarter.

QV general manager David Nagel said: “It’s no surprise that the largest declines are occurring in locations that experienced the strongest growth over the past couple of years. These markets were the first to become overheated and that makes them more susceptible to a value correction as rising interest rates, tightening credit and affordability concerns start to kick in.”

Owen Vaughan, editor of OneRoof.co.nz, said: “OneRoof’s own figures for April show a similar downward trend, with Auckland’s average property value falling 2 per cent over the quarter to $1.545m – the biggest drop since the global financial crisis.

“The slowdown will be a jolt for many. At the end of 2021, the quarterly growth figure for New Zealand was running at almost 7 per cent. In Auckland, it was 7.6 per cent. That’s quite a shift and one that will have wrong-footed a lot of sellers, especially now there’s more stock on the market and less urgency among buyers.

“However, property values in every region are ahead of where they were six months ago. Those who bought before 2020 and are considering selling will still feel the effects of the boom,” Vaughan said today.

Last week, the Herald reported Barfoot & Thompson figures for April when Auckland’s average house sale price has dropped from $1.23 million to $1.21m and the median from $1.81m to $1.41m.

The amount of property available for the agency to sell from March to April also jumped from 4816 to 4845.

“The decline in Auckland residential property prices that has been predicted following the rise in the rate of inflation and mortgage interest rates has finally shown up in sales figures,” managing director Peter Thompson said last week.

“The median and average sales prices in April fell back when compared to those in March, and those for the previous three months, but remained well ahead of the prices of property 12 months ago,” he said.

In March, the Herald reported Real Estate Institute data from February that showed national house sale volumes dropped 33 per cent annually but Auckland volumes fell by 40 per cent.

The REINZ and Tony Alexander survey out last week showed first-home buyers and investors had “backed away, agents report that prices in their area are falling, Fomo is all but gone to be replaced by a record level of Foop (fear of overpaying) and interest in property from offshore has reached a two-year low”.

Agents continued to report that buyers have few worries about their employment and listings are abundant. But rising interest rates are increasingly concerning and although worries about securing finance have eased slightly, it still remains a significant concern of buyers, that survey reported.

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