First home buyers faring better than other types of buyers in the current housing market

Property / analysis

First home buyers paying $736,000 on average for a home and borrowing $588,000

27th Jul 22, 11:53am by Greg Ninness

First home buyers may be proving more resilient than others in the housing market in the face of rising mortgage interest rates.

The latest figures from the Reserve Bank and the Real Estate Institute of NZ suggest that while fewer homes are being sold and less mortgage money is being lent, activity by first home buyers is down less than the overall market.

In June this year the number of residential sales reported by the REINZ was down 38% compared to June last year, while the the number of mortgages approved for first home buyers was also down by 38%.

However last year was an unusual one in the housing market as low interest rates flooded the economy with cheap debt, unleashing a wave of irrational exuberance and speculative buying as people competed for properties.

Things have cooled considerably since then.

Compared to June 2019, before Covid turned the market topsy turvy, housing sales in June this year were down 24%, while loans approved to first home buyers were down by just 15%.

That suggests first home buyers' buying activity is much closer to pre-pandemic levels than the total market.

Based on new mortgage approvals and monthly housing sales figures, interest.co.nz estimates that first home buyers accounted for almost 40% of residential sales in June this year.

That was the fourth consecutive month that first home buyers' share of the housing market has increased and is an exceptionally high figure.

Interest.co.nz's figures only go back to August 2014 but during that time, first home buyers' share of monthly housing sales has only been higher than it was in June on four occasions.

Prior to November 2016 it was consistently below 30%.

The figures also suggest first home buyers are not paying any less for the homes they are buying, or borrowing less to finance the deals.

Interest.co.nz estimates the average price paid for a home by first home buyers peaked at $761,000 in May and then dropped back to $736,000 in June, which was still the fourth highest monthly average ever.

The average size of the mortgages approved for first home buyers peaked at $595,000 in May and dropped back to $588,000 in June, which was also the fourth highest ever.

And in spite of lending restrictions imposed by the Reserve Bank, just over a quarter of the mortgages approved to first home buyers in June were to borrowers with less than a 20% deposit.

So what does all of that mean?

Essentially, it means first home buyers have also been affected by rising interest rates and stricter lending conditions, but not by as much as other types of buyers, so their overall share of the housing market has been increasing.

It's likely that a major contributor to this trend is that first home buyers are more strongly motivated to make a purchase than other types of buyers.

Investors or existing home owners looking to move up the property ladder may be more inclined to delay a purchase when the going gets tough because their need to buy is less urgent.

However the emotional motivations for home ownership remain strong, so if first home buyers are in position to buy they are more likely to do so.

The figures also suggest that although house prices have been falling in most parts of the country, first home buyers are not spending any less on the homes they are buying.

They seem to be following the maxim "borrow as much as you can and buy as much as you can" and are simply getting more house for their bucks.

Another factor is that first home buyers are also likely to be younger than existing home owners and investors and possibly more inclined to take risks, and certainly in the current market, there are plenty of those.

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64 Comments

by Carlos67 | 27th Jul 22, 12:01pm 1658880090

Just watched the Barfoots live Auction for the North Shore and 6 houses and only one sold. Zero interest in normal houses the only one sold had 2 bidders and sold for 3.66 million. Looks anything but a FHB market to me.

by Retired-Poppy | 27th Jul 22, 12:11pm 1658880685

"zero interest in normal houses"

What's a "normal" house? 😳

by taimaiakka0 | 27th Jul 22, 12:21pm 1658881293

Which has no bidder :)

by Retired-Poppy | 27th Jul 22, 12:34pm 1658882048

.... or he could be suggesting only strange people are buying in this market (strange houses)

Why buy when they're only going to be cheaper tomorrow? The dearer ones more so....

by HouseMouse | 27th Jul 22, 2:37pm 1658889459

Or strangely normal

by HW2 | 27th Jul 22, 4:39pm 1658896758

Wicked !

I luv your GSOH

by DTRH | 27th Jul 22, 12:56pm 1658883368

If you take home 100k a year and saved every dollar only 36. years to save enough to pay cash for this property, so over valued it will be interesting to see what this house will sell for in a years time.

by Caughtinthemiddle | 27th Jul 22, 12:22pm 1658881376

I hope any FHB entering the market today got a price that factors in at least the same drop again as we have seen since the peak.

by HouseMouse | 27th Jul 22, 1:41pm 1658886067

Exactly.

by rastus1 | 27th Jul 22, 12:26pm 1658881562

Lets give some credit to Labours policies in this area - Nat would have done zilch.

by Nzdan | 27th Jul 22, 12:59pm 1658883564

Be careful rastus, one eyed partisan supporters are all over the Internet. They'll claim you're a Labour fanboy for giving them credit and proceed to paint you as a left wing dole bludger. A bit like our rugby culture, except people don't generally receive full on character assassinations for saying anything positive about The Chiefs.

by rastus1 | 27th Jul 22, 1:18pm 1658884699

Far from a fan boy of labour...however I think their new tax policy levelling the playing field for first home buyers verse the investor class is a cracker.

Surprises me how so many have written them off for the next election.

Floating and TOP supporter is I.

by RickStrauss | 28th Jul 22, 7:18am 1658949493

No one's more a bludger than the speculators evading tax and bludging on productive Kiwis who pay the bulk of taxes.

by Advisor | 27th Jul 22, 12:59pm 1658883596

Luxon uses better buzzwords to describe NZ's dire economic situation - squeezed middle, NZ businesses going "soft", lack of frontier firms, tidal wave of cash injected into the economy.

He keeps calling himself an outsider but parrots the same neoliberal nonsense his predecessors did to fixes the broken system, i.e., take the country back to the golden John Key era.

by nz-it-worker | 27th Jul 22, 1:42pm 1658886138

You know things are tough when Luxon has to borrow John Key’s Hawaiian shirt. Now that’s a squeezed middle.

by HouseMouse | 27th Jul 22, 1:42pm 1658886141

I am not giving Labour any credit.

This housing correction/ potential crash is almost solely due to the hiking of the OCR.

by JimboJones | 27th Jul 22, 2:17pm 1658888250

The OCR rise is due to inflation, and according to ACT and National, Labour created that inflation. So credit please.

by kwbrn | 27th Jul 22, 3:22pm 1658892164

No. Inflation was created because the OCR was dropped to stimulate the economy so you could all keep your jobs.

by agnostium | 27th Jul 22, 8:54pm 1658912051

So dropping the OCR has saved jobs and created inflation that has caused house prices to fall. Keeping people employed and fixing the housing market at the same time, doesn't that mean Orr is a genius?

by Dale Smith | 27th Jul 22, 2:02pm 1658887321

Credit for what policies exactly?

by GV 27 | 27th Jul 22, 2:28pm 1658888905

Kiwibuild, which just ended up outbidding FHBs on houses that were already going be built?

Or the FBB, which excluded our major trading partners instead of us renegotiating the agreements like was campaigned on when someone pointed out you couldn't just exclude those countries?

Yes, all excellent policies with proven results.

by Juzz | 27th Jul 22, 11:56pm 1658922993

Are you sure about that. Maybe take a look at this around 27 mins in.

https://youtu.be/50FHR7h3k8A

by huttman | 27th Jul 22, 1:13pm 1658884392

just checked my rates, and this year wellington city council had given me a 16% rates increase.

I just don't see why rent can keep as is.

by FCM | 27th Jul 22, 1:24pm 1658885048

don't worry it should go down once three waters is in, as the council won't need to maintain half their assets or support them. Oh wait no they won't.

by refactornz | 27th Jul 22, 1:56pm 1658886962

Ours are up by 37% and that's despite several weeks of no glass recycling due to "staff shortages". $100/week for what exactly?

by OldSkoolEconomics | 27th Jul 22, 2:32pm 1658889162

Tauranga increase is 13.7%.

But wait the good news:

... they are building a whole new town center - from what I can make out it will have a multimillion dollar library and picture gallery (just what the people who are skipping meals due to inflation need to cheer them up... some old fashioned paper books and photos!).

... They have tons of roadworks all over the place all of the time (though we never get anywhere faster.. in fact its impossible to get anywhere for them)

.. they will have low carbon electric buses (which nobody uses because they make 50 stops between anywhere and the city center, so a 30 min car journey becomes a 60 minute+ trip... but at least the empty buses are environmentally friendly).

.. next time around they want a spanking new stadium for another few hundred mill. (lucky our lot are much better at budgeting that the xchurch pro stadium project team)

.. i missed the $150 fine for residents using the only bypass to get around the major roadworks that are 3 years overdue and way over budget... (that we expect to pay high rates AND be able to get anywhere is probably pretty selfish)

EVEN BETTER - is that Taurange is a fast growing big spending city... so citizens no longer have to waste all that time voting for local government leaders - as they are now directly appointed by Jacinda and Co.. (because we dumb citizens would only go and choose the wrong people - better all centralised like health and 3 waters so jacinda and grant can make adult decisions for us).

And the bestest bestest news is that councils can carry a TON of extra debt now - so these clever bods can spend up the whole credit limit now - on the stuff they know we need and we dumb ratepayers and our kids and grandkids can pay it off for them. I for one am mega excited at the prospect and so delighted to have such a clever bunch of LG and CG leaders.

by Carlos67 | 27th Jul 22, 2:35pm 1658889313

That's not an increase across the board only places like Papamoa got smashed because you had massive RV increases.

by rastus1 | 27th Jul 22, 2:53pm 1658890416

..they need to add a stadium at a billion with a roof. Guaranteed prosperity. Ask any rugby player at the local.

by chebbo | 27th Jul 22, 3:05pm 1658891149

Stadiums, electric busses, libraries, statues, all just vanity projects for the local pollies.

by Baywatch | 27th Jul 22, 3:51pm 1658893913

Electric Buses are not a vanity project...Stadiums certainly are.

by agnostium | 27th Jul 22, 8:56pm 1658912183

Or libraries

by Baywatch | 27th Jul 22, 2:50pm 1658890222

Rents will actually drop ..driven by demand only..and having recently left the windy city ..tough tittys

by Advisor | 27th Jul 22, 3:23pm 1658892238

Unlikely with borders reopening that should bring tons of new tenants to the capital. The public sector has massive appetite for international graduates and bureaucrats, encouraged by the diversity & inclusion specialists agencies have on their payrolls.

My ex-boss retired to serve on a technical committee for an autonomous Crown agency. His term along with some other experts in their respective fields was not renewed for being of the appropriate age band and ethnicity to the portfolio Minister's liking.

by Juzz | 28th Jul 22, 12:00am 1658923243

Because rents have been overpriced for as long as house prices have been overpriced. Rents won't fall as much as house prices though. They should but they won't

by Northlander09 | 27th Jul 22, 1:43pm 1658886218

LAMBS TO THE SLAUGHTER

Just kidding, good on them. Unless you were affected by it personally, it is hard to understand how demoralizing and depressing it has been being a young kiwi just trying to put a roof over your head and get away from paying someone else's mortgage. Finally, there is some hope. This is something that should be celebrated by NZ as a whole and a price price point that allows FHB's into the market should be found over the next few years, then maintained by any government in the future. Every kiwi should want this and demand it from Government.

What if interest rates drop again I hear you ask? We could try this. Interest repayments are set to a minimum of 5%. If interest rates drop further, say to 4%, the repayments stay as they were at 5% but that extra 1% is taken off the loan. That way the house market remain unaffected by super low interest rates, but borrowers still benefit from the cheaper rates.

Can anyone tell me why this is not a good idea?

by morepork | 27th Jul 22, 1:58pm 1658887114

588k mortgage is 728/week (38k/year) for 30 years at 5%, with rates and insurance on top of that. One heck of a ball and chain to be carrying.

by refactornz | 27th Jul 22, 2:11pm 1658887909

So not much more than rent, but unlike rent those payments won't keep going up over time.

by MidNZ | 27th Jul 22, 2:23pm 1658888600

Apart from insurance, council rates and increases to mortgage interest rates?

by Nzdan | 27th Jul 22, 2:31pm 1658889107

Landlords also have those costs. Do you think renters will just get a free ride for 30 years while the Landlord just swallows those costs and make a loss?

Renters also should have contents insurance right? Well not as a rule but I certainly did when I was renting.

by rastus1 | 27th Jul 22, 2:56pm 1658890600

Over leveraged landlords will have to bail out at a loss. The new buyer will have less interest to pay so they can meet other increased costs.

That's how a market works

by Rob Reid | 27th Jul 22, 9:34pm 1658914466

Yup, owning must suck. It would cost double what I'm paying in rent even before rates, insurance and maintenance.

by Nzdan | 27th Jul 22, 2:28pm 1658888887

Exactly. Simplified terms wages go up 2.5%, there are 2 scenarios:

Rent goes up 5% capturing all that increase in dollar terms
Mortgage principal stays fixed, but mortgage payments can increased by 2.5% or 6.25% if you put the full increase towards the mortgage (assuming 40% of pay to service).

by morepork | 27th Jul 22, 3:02pm 1658890964

Average weekly rent for NZ in the last update I saw was about $550/week vs probably $850/week once rates and insurance are factored in. Not sure what world you live in where >50% more is "not much more"

by Sibrit | 28th Jul 22, 3:40pm 1658979615

Depends on where you are, doesn't it?

$550 / week will rent you a nice 1 bedroom apartment in Wellington. Or a tatty 3-bed house.

$850 / week will buy you a brand new 4 bedroom house in Rolleston. Possibly. Depending on material supply price hikes.

Of course, having a house in Rolleston when you work in Wellington may not be the best option, but a fair number moved from inner city living to the suburbs, especially with the increase in remote working.

I feel for those in the middle though, that are having to pay rather high rents and can't quite get their ducks lined up to pay 35% extra for their own place. Must be frustrating.

But they are also the ones who should be hopeful with the current downward trend of house prices. If they keep saving eventually something will land in their financial ballpark.

by CourtJester | 27th Jul 22, 3:02pm 1658890977

You've got to be kidding me.

My rent has increased by zero percent in the past 3 years.

Meanwhile, if I bought the same house when I moved in, my mortgage payments would have gone up by about 50%. Add insurance and rates to that too.

by USKiwi | 27th Jul 22, 3:28pm 1658892523

But when you are finished up paying your mortgage you have a valuable and highly sought after asset which you can either pass on to next generation, or downsize on to fund retirement. So yes it's more expensive to service a mortgage now - but not much more than paying rent on a decent place. As a society, we should be trying to do everything we can to lift home ownership rates, rather than making property investors rich by renting their properties (It's a no-brainer that we need to bring in a capital gains tax - and to keep it simple, bring it in for all property including primary home - it will make for a much more equitable society over the long term).

I've been paying $1,500 a fortnight on my mortgage from the outset and it won't change through the higher interest rate cycle as you just lengthen/shorten the repayment period through the various cycles.

by CourtJester | 27th Jul 22, 3:32pm 1658892747

Sorry, your base assumptions is only valid in certain market conditions. Not in NZ. At the moment I'd be paying more in interest to the bank than I'm paying as rent.

by refactornz | 27th Jul 22, 4:02pm 1658894525

You're only looking at the short term though. Your rent won't remain static for 30 years, and although home loan interest rates have increased over the last year they won't keep doing that over 30 years and could easily fall back lower than where they currently are.

by Just Some Advice | 27th Jul 22, 6:01pm 1658901662

True, rent could also fall.

by Fitzgerald | 27th Jul 22, 8:29pm 1658910549

Ireland 2.0

by refactornz | 28th Jul 22, 8:48am 1658954903

Temporarily it could but long term it wont. Rent is more correlated to average earnings, and earnings will keep going up over the long term.

by HW2 | 27th Jul 22, 4:48pm 1658897316

Don't worry USKiwi, the jester used the same foolish argument in 2019 to talk himself out of buying then

by Just Some Advice | 27th Jul 22, 5:59pm 1658901579

I guess if you think there's only one way to do things then you're right.

by DTRH | 27th Jul 22, 2:36pm 1658889404

What can 700k buy you in Auckland at the moment, just wait a while as price’s crash the choices will be more.

by FCM | 27th Jul 22, 2:38pm 1658889504

Yep, and god help them if ever made redundant in that time (which will probably happen once) or want to have children. One hell of a ball alright.

by Eschaton | 27th Jul 22, 2:56pm 1658890587

Indeed, the numbers are nuts.

by Zachary Smith | 27th Jul 22, 2:32pm 1658889129

This could be a good buy, sold at auction today:

https://www.barfoot.co.nz/property/residential/auckland-city/parnell/ap…

QV estimate 820k

CV 840k

Sale price 619k

by HouseMouse | 27th Jul 22, 2:42pm 1658889774

Yeah on the surface looks quite a good buy. But I am a tad suspicious. Potentially high body corp fees, or some sort of structural issue that all owners need to address?

who knows, maybe it was simply quite a good buy.

by HouseMouse | 27th Jul 22, 2:59pm 1658890740

Also it’s very small, even for a one bedroom. Roughly 35-40 square metres?

Certainly a blue chip location and great views / sun.

by Nzdan | 27th Jul 22, 3:16pm 1658891771

See all the cracks in the shower tiles ;).

by Beanie | 27th Jul 22, 7:39pm 1658907552

Getting off topic I know, but what is it with modern bathroom design. Take that handbasin...how are you going to wash your face in with the spout like that...and with no sealing against the wall it's going to get damp and scungy behind there. I see a lot of bathtubs with the same problem. Seems it's all about form over function.

by DTRH | 27th Jul 22, 2:51pm 1658890268

So many people getting taken to the cleaners, by the time housing crash is complete you will wish you never got tempted 200 k under QV.

by Speedmax | 27th Jul 22, 5:45pm 1658900717

Nice part of town, and a building of this age is unlikely to have too many major issues. But 600k is still a huge amount of money for what this is - esp when you consider in international terms. Imagine a 30 y.o. FHB getting into this, borrowing 80% then stuck with $3000 pm payments for next 25 yrs while still living in a shoebox….it’s still at least 25% overpriced

by Rob Reid | 27th Jul 22, 9:32pm 1658914338

Investors handing the bags to any FHBs who are still eager.

Sorry, not that desperate to "own".

I have a friend in Northland selling his house to go renting, hoping to catch the top. Has had what is apparently an unusually high level of interest pre-auction so he might be lucky.