First home buyers represent 26% of residential property market in latest quarter

From RNZ

First home buyers’ share of the property market has reached a record high, but it remains to be seen if the momentum can be sustained.

A new report from property research firm CoreLogic shows first home buyers represented 26.4 per cent of the property market in the three months ended September, up from 21.5 per cent in the prior quarter.

The long-term average is 21.8 per cent and the previous benchmark, set in the third quarter of 2020, was 25.6 per cent.

During the same three-month period, the average house price in New Zealand rose nearly 5 per cent to $950,229.

CoreLogic chief property economist Kelvin Davidson said extra care was needed when interpreting the figures because the number of transactions completed over the quarter had been disrupted by the reimposition of lockdown restrictions, resulting in a smaller sample size.

“However, it’s safe to say FHBs are very active in the market.

“[First home buyers] were taking the opportunity to get into the market, capitalising on strong financial incentives to buy rather than rent, filling the gap left by a decline in mortgaged investors’ market share who faced tougher conditions due to tighter lending restrictions.”

The share of purchases they made had been unexpectedly strong, given that house prices had surged by more than 27 per cent in the past 12 months, he said.

New purchasers were increasingly drawing on their KiwiSaver and “the bank of mum and dad” to put together a deposit, Davidson said, and were also making compromises on property type and location to get into the market.

The data from CoreLogic showed the average median price paid by first home buyers was $660,000, down from $685,000 in the prior quarter – when freestanding houses made up a larger share of purchases. The median price paid a year ago was $565,000.

Freestanding properties accounted for 72 per cent of all new buyer purchases in the third quarter, down from 78 per cent a year ago. The proportion of flats, defined as townhouses and shared wall properties, rose to 18 per cent, compared with 14 per cent in 2020.

Davidson said it would be interesting to see if the first home buyer market could hold up at similar levels in the coming quarters, given that new lending limits would affect new buyers’ ability to save a deposit.

“The average time to save a deposit is now more than 10.5 years, up from less than nine a year ago, and well above the long-term average of around eight years.”

Buying a house with a deposit of less than the standard 20 per cent had been popular among FHBs, Davidson said.

“However since the banks’ allowance for advancing low deposit loans to owner occupiers recently halved from 20 per cent of lending flows to 10 that is no longer an option for many.”

Additionally, interest rates were expected to rise incrementally over the next 12 months, as the Reserve Bank looked to ward off inflation pressures.

This would add pressure to the cost of servicing a mortgage for first home purchasers, Davidson said.

First home buyers by region

First home buyers were most prominent in the Wellington market, accounting for 33 per cent of all transactions in the past three months, compared with its long run average of 29 per cent.

Dunedin recorded the steepest growth, as the new buyers made up 30 per cent of all transactions, which is eight points above its average of 22 per cent.

CoreLogic’s data showed first time property owners in Auckland were paying slightly less than the rest of the market, where first home buyers paid a median of $900,500 compared with the city’s median paid by all buyers of $1.05 million.

Christchurch was the cheapest of all the main centres, with first home buyers paying a median price in excess of $500,000.

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