Did the first home buyers see trouble ahead?

Property

Whether it was down to early coronavirus concerns, or just increased worries over affordability, first home buyers pulled back sharply from the market last month

25th Mar 20, 3:45pm by David Hargreaves

Were they spooked by the horror stories then emerging from China about coronavirus?

Or were first home buyers being put off by increasing concerns over affordability of houses?

Whatever, and you are welcome to speculate yourselves, the now very historical Reserve Bank residential mortgage lending by borrower type figures for last month show that first home buyers pulled back very sharply from the market in February.

In recent months the FHBs had been aggressively bidding up their share of the mortgage money available, with their share of the total amount advanced, hitting a new high of just under 19% as of January.

However, in February 2020 the share of the money taken by FHBs fell very sharply to 16.8%, lower than it was (very slightly) in February of last year and in fact the lowest share since November 2018, when it was about 16.4%.

And the fall off in interest from the FHBs came in what was generally a fairly strong month for lending.

The $5.579 billion advanced by the banks for mortgages in February was up some $781 million, or 16.3% on the amount advanced at the same time a year earlier.

With investors only again borrowing something just over 20% of the total advanced in February of 2020, owner-occupiers were the ones accounting for most of the increased lending.

As stated above, the figures are now of largely historical interest, since what happens from here will bear no relation. But nevertheless they do provide a snapshot of a market that was interestingly poised. Before that virus came along...

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17 Comments

by firsthomecryer | 25th Mar 20, 3:57pm 1585105072

Who knows. Most of my friends in Auckland are renting and living with others – it gets tiring after well over a decade of flatting, but it's the reality for people in their 30s now. I am 'lucky' to just be renting with just my partner. Will ordinary kiwis such as ourselves have a decent shot at homeownership in the foreseeable? I don't have a crystal ball. Fighting Covid is all that matters right now.

by Voiceofreason | 25th Mar 20, 5:17pm 1585109870

You should have a chance in terms of income to price ratios coming way down I’d say, but there will be a lot of unemployment along the way too.

by J-P | 26th Mar 20, 12:07am 1585134472

"investors" and normal mortgage holders might be bailed out (or just helped a bit) but will banks still be lending same multiples after this? (They will be bailed out of course. ) What are their costs to provide mortgages and what is their risk? Prices have risen in relation to looser lending. If banks reign in credit eligibility will the price adjust downward? If unemployment goes up and immigration declines, how will demand look? If more people need to sell (financial/health) what will supply look like?

by Avocado | 25th Mar 20, 4:21pm 1585106483

I would say a compounding effect of job security, maybe a chance at lower buy costs in the future and a big one will be most younger people have their kiwisaver on high growth or in this case high loses

by CJ099 | 25th Mar 20, 6:05pm 1585112753

Yes I and virtually all of my friends have taken a haircut on Kiwisaver. Surprisingly I managed to reduce my losses by having switch over from one bank to another only a short while ago.

by stuart786786 | 25th Mar 20, 4:30pm 1585107021

Just last week was headline that housing market is on top so how come this news today.

Anyway last month it was all over media How stock market is booming and creating New high despite ..........and today stock market........

So be prepared for housing market news next month.

Wait and Watch

by Voiceofreason | 25th Mar 20, 5:23pm 1585110208

Yes, all that good housing news this year was pretty much papering over what was really happening. Quite a few people on here saw what was really happening on the ground.

by CJ099 | 25th Mar 20, 6:07pm 1585112833

It was bound to happen, will there be a bounce back? Who knows....

by Brock Landers | 25th Mar 20, 6:34pm 1585114445

This is just the beginning. Housing is going to be fubar. Party is over.

by Big_Data | 25th Mar 20, 7:04pm 1585116278

Yeah makes sense. We had an accepted offer in Nov, which we withdrew after inspection, and another one in (I think it was) Jan...also withdrawn after inspection. There seemed to be too many ill-winds around to justify buying a place that was already teetering on the edge of what is 'affordable', and inspection issues (even pretty minor ones) compounded that. Call it the heeby-jeebies, or maybe I "lack balls" (thanks TTP, actually I do), but I'm pretty glad we sat those two out. Who knows where we will be in 6 months. Sad and scary times for all.

by Yvil | 25th Mar 20, 8:36pm 1585121769

You are not Ollie Newland indeed

by Uninformed Hillbilly | 25th Mar 20, 7:48pm 1585118923

Hope not because it has been obvious for years

by Keen Observer | 25th Mar 20, 11:08pm 1585130893

FHB, you will be the looser here.. the advised from RE industries is very crystal clear...every imaginable government apparatus, Central Bank & Banks in NZ (and worldwide) is gear up to protect this particular main asset category - so? go jump.. you shall be save.. no matter how shallow or deep the pool or the cliff edge - you shall be rest assured, there's an invincible govt guaranteed cushioning at the end of it. Absorbing the loss/impact at any cost (usually by more of overseas borrowing magical numbers, printing money with infinity numbers), soon? obviously this activation of OBR (pencil out this word). That is the one sure of certainty about your current decision making process, go scouting the internet while in lock down, click 'buy now' then settle it after the lock down completed. - You Won't Regret it ! - warning: you've been encouraged with non-bias advisory here.

by VictimOfOCR | 25th Mar 20, 11:09pm 1585130953

Speaking as a prospective FHB, I had obtained pre-approval from the bank in mid feb. My original plan had been to look to buy by winter 2021 but my parents were visiting at the time and convinced me to meet with the bank. I obtained pre-approval for 950k which was more than I expected.

Within 2 weeks the stock market had crashed. I’d had a little invested in shares but had made a very good call to sell 40% (by value) on 21/02/20 just hours before the declines begun. Things just looked odd to me, there’d been an unexplained blip in the S&P500 that caused the index to droop 0.3% a few hours earlier and it struck me, everything was appreciating; gold, bonds, shares, treasury bills. People were buying everything and it suddenly felt dangerous so I went with my gut - a difficult call when many of my holdings were appreciating by the hour and COVID-19 was firmly a Chinese issue and expected to fade away like all the outbreaks in recent times.

My KiwiSaver had been transferred into a cash fund mid 2019 because I considered trump’s agitation in the trade war to be a recipe for eventual disaster but over recent weeks, in the back of my mind was the plan to switch to a balanced fund; thankfully I’m disorganised.

I’d not even gone to my first open home when the crash hit. I’d done some shortlisting online but hadn’t yet moved on in my mind from purchasing next year some time.

I now have no intention to get serious with house hunting. I’ll keep an eye on property analysis as I have done for the months before but it’s unlikely I go beyond online shortlisting given recent developments - I’m in no great rush so will wait to see how all this affects the property market over The next 6 months.

This FHB is on hold until I understand COVID-19’s effect on property.

by Keen Observer | 26th Mar 20, 1:28am 1585139320

Ouh well.. property bull sprinklers, I've done my best. This VOocr is not much differ than most of FHBs, try different approach to encourage the upward pricing trickle movement, so now have to waiver that imaginary commission.. did try, but yea.. some of those FHB just too savvy ;-(

by iconoclast | 26th Mar 20, 3:39pm 1585190365

VictimOfOCR

Well done. Keep trusting your instincts

I'm a retired financial global markets trader. My son was here in NZ in July 2019 from Oz. Been there for quite awhile with a reasonable amount of compulsory Superannuation in a mixed fund with 70% in shares. We got around to talking about things family and security. Based on my experience and instinct I recommended he move the lot into cash which he did in September 2019. In the 6 weeks between my advice and moving, the market dipped 5%. By end of January 2020 the market had risen 10%. He was not happy. The market has since fallen 30%. He is now very happy. What you were seeing you were seeing right.

by VictimOfOCR | 26th Mar 20, 4:03pm 1585191782

Thanks. We have lost money during this downturn; there were shares that didn’t make sense to sell at the time that I’ve held onto and have lost further value. There’s also my partner’s KiwiSaver which was in a balanced fund and has dropped a fair way. I’d tried to convince her to change to cash but she just kept putting it off until it was too late. I also have a longer term investment in certain ETFs which have taken a beating but I’m comfortable with my risk profile now so the loses aren’t getting me down.

I’d felt a bit forced to take risks with shares in order to get a deposit together for a mortgage. I just couldn’t seem to save fast enough to keep up with house prices and became desperate but I’ve certainly learnt to follow my instincts along the way - sometimes even when the data says otherwise!