Is time working against first home buyers?

Guest Post by Tony Alexander

Data just released by CoreLogic tell us that whereas on average 21% of property sales in New Zealand are to first home buyers, over the September quarter the proportion was a record 27%. These data are consistent with the key point I have been highlighting from my monthly surveys of real estate agents and mortgage brokers since February.

At the end of 2022 my real estate agent survey showed that a net 16% of agents were seeing decreased numbers of first home buyers in the market. Come February that had changed to a net 22% seeing more. In May the outcome was 55% and the most recent result also 55%.

Why have first home buyers jumped boots and all into the housing market since early this year?

Not because of lower interest rates. They have been high and moved higher through all of this year. Instead, young buyers have seen that in contrast to 2021 when the number of property listings fell below 14%, listings come the end of 2022 were over 28,000.

Not only has the range of choice been good but there have been very few other buyers. Investors have been standing back from the market since the end of March 2021 when the tax rules changed to remove interest expense deductibility on existing properties.

Young buyers have also been able to access their KiwiSaver funds and some assistance schemes have been made available.

Significantly however, I believe these two factors have been in play.

First, young buyers have been enjoying extremely good job security.

The unemployment rate has been below 4% and options for securing work and even extra hours of work have been strong. Confidence in continuing employment will have encouraged people to take on board the high level of debt needed to secure a home in New Zealand these days.

Second, young people have built up good-sized deposits.

Many would have been ready to attempt a purchase from early-2021 but did not do so because there were few suitable properties available to buy. They then did not buy from late in the year as the credit crunch hit. Then, through 2022 they held back from the market because prices were falling.

Over this time they have continued to earn and without mortgages and the cost of rising interest rates hitting those already in their own home have been able to set a lot of money aside for a future house purchase.

The evidence at the moment is that first home buyers retain a strong presence in the market.

In fact, I feel many will feel incentivised now to accelerate the timing of their first property purchase. This is because the coming change to rules for investor taxes back to the way they were is already bringing investors back into the market.

There is no large wave of investors returning however, and the housing market is not remotely in a frenzied state as was the case over the period from mid-2020 to late-2021. 

But with extra buyers set to appear, young people will feel that time is decreasingly on their side.

It also pays to note that they are facing rising rents with decreasing availability of rental properties as tourists return along with foreign students, and the country’s pace of population growth surges because of record net migration inflows.

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