Falling house prices are generally seen as being beneficial for first home buyers, making it easier for them to get a home of their own. But that is not necessarily the case.
The most obvious benefit of lower prices is they reduce the amount buyers need for a deposit and the amount they need to borrow for a mortgage.
However if interest rates are rising at the same time prices are falling, the benefits of a lower deposit and smaller mortgage can be outweighed by higher mortgage payments, leaving prospective first home buyers no better off.
The tables below show the lower quartile prices in August this year compared to their recent peaks.
Nationally the lower quartile selling price peaked at $670,000 in November last year. By August this year it had dropped by $70,000 to $600,000.
Around the regions lower quartile prices in August were down from their peaks by between $9000 in Southland and $145,000 in Wellington. The only region not to record a price decline was Taranaki, where the lower quartile price peaked in August this year.
Those lower prices reduced the amounts required for a 20% deposit on a lower quartile-priced home compared to the peak by between $1800 in Southland and $29,000 in Wellington.
The reductions in the amounts needed for a deposit compared to the peak were above $20,000 in five regions - Northland, Auckland, Wellington, Nelson/Marlborough and Otago. That's not small change and has likely helped many first home buyers get a deposit together for their first home.
However the rise in interest rates over the same period has probably taken the shine off the price falls for many.
Nationally, although the fall in the lower quartile price meant the amount required for a 20% deposit had declined by $14,000 from its November 2021 peak, rising interest rates over the same period had pushed up the payments on an 80% mortgage by $22 a week.
There are only four regions - Northland, Wellington, Nelson/Marlborough and Otago, where the amount required for a 20% deposit and the weekly mortgage payments were both lower in August than they were when prices peaked in those regions.
Those regions are the sweet spots, and getting into a home of their own is definitely more affordable now for first home buyers in those regions than it was when their prices peaked.
First home buyers in Hawke's Bay are also likely closer to getting their own home now than they were when lower quartile prices in the region peaked in November last year.
That's because the amount needed for a 20% deposit has declined by $17,500 over that time, while the weekly payments on an 80% mortgage have only increased by $3 a week.
The balance may also have tipped slightly in Auckland first home buyers' favour, where the amount required for a 20% deposit on a lower quartile priced home has declined by $23,200 since the November 2021 peak. Over the same period the amount needed to pay the 80% mortgage has increased by just $16 a week.
In other regions (apart from Taranaki), where the amount needed for mortgage payments has increased by between $34 a week in Bay of Plenty and $98 a week in Manawatu/Whanganui, first home buyers may not be feeling any closer to owning their own home.
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72 Comments
Whether first home buyers are benefiting from falling house prices depends on where they live
It also depends on your definition of the word "benefit". I'm not sure that getting into the housing market should be considered much of an advantage at present.
The 10% deposit table amazingly shows South Auckland as 4th least affordable. Sounds like investors are piled in to that market, not FHBs.
Home loan affordibality data clearly indicates that house prices in Auckland have further to fall as even now is in extreme and is when mortage rate hike is still on and not yet peaked - another 0.5% or 1.5% jump from here will lead to blood in street.
must always add the qualifier ... "in my opinion"
Hi Carinaz,
There’ll be “blood in street”🩸of folk who look back in five years time and wish they’d bought a property in the good ol’ days of 2022 - when house prices were cheap.
NZ is an increasingly sought-after country to reside in. And things can only get better when National forms the government - in a year’s time.
Mind you, Jacinda has been a great PM - the best person we could have had in the job over the last five years. Huge respect for the way she managed Covid - avoiding so much suffering and saving so many lives. That’s far more important than any housing market.
TTP
"blood in street”🩸of folk who look back"
I will watch where I step today .... thanks
Please read this article then justify how much more human rights we can trample to make more money from housing in 2027.
Old speculators' rights trump human rights.
If 2022 will be the ‘good ol’ days’, then things must really go downhill from here. 🤔
Wait and Watch.
Even in stock many who entered for the first time specially young and had never witnessed a crash, went all out in greed, here too those who bough quality companies and have long term holding capacity will be fine, though opportunity that is being created by this crash will be lost to them in absence of liquidity.
Same applies to property.
Simple solution just wait maybe a year or two price’s are falling rapidly, the deposit which took 9 years to save could become a 50% deposit rather than 20%.
Spoken like a true real estate agent
Yip. Just like inflation was definitely only temporary and russia would definitely never invade ukraine and interest rates definitely wouldnt rise much in 2022 and germany relying on russia for 90%+of its gas was a safe bet in the nwo of the 2020's
And buying property in ireland was a great idea in 2001 and buying property in spain was a great idea in 2007.
Lol... as per warren buffets investment advice. Ignore the words and study the fundamentals... so right now russia ukraine war is worsening, china USA relationship is getting worse, inflation is far from fixed and the usa is going to raise interest rates more to kill inflation regardless the effect on GDP and the economy... and our reserve bank will have to raise interest rates as the usa does so, plus our owm inflation is still worsening.
So.. overall the facts show the recent raises in.interest rates has resulted in significant price drops and the interest rates are likely to rise leading to more drops in house prices.
Why buy now?
Take further the global population is falling, advanced economies are competing for the top talent (people with money and people with the skills needed by innovative high growth export companies) by attracting the industries they want to work in, setting taxes appropriately and building infrastructure and climate policies that are attractive to those people. Nz doesnt even have a strategy to compete to attract said people let alone have any claim that any are coming here.
So why buy later?
Not sure where you got the "global population is falling" from? - It's certainly still growing and we are expected to hit 8 billion people by November this year! Growth rate has dropped back to 1%.
World population is projected to peak by 2100.
But in most urbanised places, the populations will be dropping back sooner, if not already.
Again, I don't think that's accurate, if you look at data from the world bank, urban centres will continue to grow.
"Today, some 56% of the world’s population – 4.4 billion inhabitants – live in cities. This trend is expected to continue. By 2050, with the urban population more than doubling its current size, nearly 7 of 10 people in the world will live in cities."
The ambitious first home buyer should eschew the shoddy infilled terrace cubicles being flogged for a million dollars a pop.
They are destined to be future slums and ghettos in the dystopian third world enclave of Tamaki Makarau.
They would be much better off taking themselves to a nice part of Australia where they can still use the same amount money to buy a spacious family home and have a great lifestyle, along with better weather and employment opportunities.
Life is too short to waste on the inside out urban planning hellscape they have conjured up for Auckland's future.
✈️✅
I had a look through this one a few weeks ago
House & Land Package $674,941 - Lot 164, New Road RIPLEY (plantationhomes.com.au)
Wow that is an eye opener! It shows the benefits of a diverse economy. Imagine living somewhere where salaries are good and homes are affordable?! Instead we get TTP going on about how good the property market has been to him and his fellow leeches. How did the powers let NZ travel so far down a cul de sac. Head shaking stuff. I called out the problem in 2012 but got told I didn’t know enough about the complexities of the NZ economy to pass an intellectual comment, lots of work to do for whichever government is in next term… god I hope we have learnt something #dti
Leeches is the perfect term for this kind of people. The sooner they are taxed or interest-rate-raised out of existence, the better for the overall health of NZ society and economy.
Plantation make some very nice homes.
yeah 800k will buy a great home in Ipswich. Even 700k.
But it's Ipswich. Had friends just a few minutes away in Springfield Lakes, but they saw the light and moved to Sydney.
Ignoring land ocation the house only build cost is around $1500 / m2. Less than half & probably around a third NZ cost for a similar spec.
It's a cheap group home. So the same thing is probably another $300-$500 per square metre in NZ.
Its in a terrible location - Almost 2 hours by public transport to the city and 1 hour by car - Nearest beach is even further. If you're going to make comparisons with the Australian market at least make it apples for apples. For reference, it would be like telling an Aucklander to live in Pōkeno as property is cheaper. (Its the same distance to the Auckland CBD as the property you suggested is to the Brisbane CBD).
Hi Brock,
Since you’re a long-time Australia-crusader, I assume you must be living there now……
If not, I’ll happily help you pack your bags and point you in that direction. 😁
TTP
Thanks, no matter where I'm living I'd rather not have a convicted criminal anywhere near my belongings. 😁
Brock, I agree, some of the townhouses I have seen in places like South Auckland that have been selling for 800k, look like they will end up very shabby to me, will social problems and cars jammed everywhere. I cant see these gaining much capital if any.
They just need about five years of UV exposure and mould to reveal their true nature.
It's a pitty more people can't or won't live outside of Auckland because the rest if the country is so unappealing.
There are so many more appealing parts of NZ than Auckland. It only takes going and exploring them to realise the bubbles that are Wellington and Auckland. More open space, less people, much more affordable, less time wasted commuting be it for work or leisure, more community feel, the list goes on. Next time you want to go away for a public holiday weekend from either, remember that
Each house is different. And the quality too. In Whangarei, a full section but less improvements than Auckland. And lower quartile houses, usually rentals, suffer from minimal maintenance.
This is true. You can get a house on the west coast for under 200k, but she's probably pretty rough.
Unfortunately in NZ, every link in the chain has people clipping extra tickets. For example, you can buy a section in Queensland for 10 grand, whereas in most parts of NZ the local council will charge you 100k just to create a section, land price additional.
Clearly not getting easier for FHB to buy in cities like Auckland... So why are people telling them to wait... what are they waiting for, it to get harder?
Best time to buy is tomorrow.
Affordability.
I guess you are being in sarcasm mode on.
But I can offer my perspective and my case.
I am waiting another 12 months circa. And I will start making offers only after the interest rates start to be cut back.
I think there is at least another 15-20% to go from here by then.
If I am right I will have saved probably another 200k.
If I am wrong I will have some more deposit anyways to use.
I am excluding the possibility of house prices going up again in the next 3-5 years anyways (most probably longer, but that is beside the point)
And I will start making offers only after the interest rates start to be cut back.
OK so what if rates don't fall back but actually continue trending upwards? For house prices to fall another 15%-20% this is what's going to have to happen.
The bubble is quite capable of continuing to burst without further rate increases.
"OK so what if rates don't fall back but actually continue trending upwards?"
Well... in that case I will reconsider, I might to want to wait longer probably.
It is still very unaffordable out there (even with another -15/20% will be unaffordable for most people).
I am not in a hurry, for now I am still making 20k per month by not being a recent homebuyer.
I mean we all know NZ is different, but in general housing busts take years to play out, not months.
This bust is going quite quickly, faster than Ireland, this housing market is way more overpriced compared to incomes and starting fall from a much higher level than Ireland. So yes New Zealand is different not sure why we created this housing price beast but over next couple of years it will be slain.
It’s hard to know what mode he is on. One moment he is quite the Spruiker, the next concerned for FHBs and bagging TA.
Maybe he is just a troll who likes to troll those on both sides of the argument.
Asking valid questions I'd say...? People obviously don't like to be challenged here - it's market collapse or nothing. It's a dangerous game only being open to a perspective that compliments yours... certaintly not a way to grow or make well thought out decisions.
This article has already has proven alot to be wrong here...
Maybe I have totally misunderstood you then, and apologies if so. But to me you come across as totally inconsistent rather than presenting valid alternative viewpoints and questioning them.
The prophet would warn us about listening to false idols talking up their own book.
There are many of these types around.
Yes the prophet would warn those not to look outside their teachings or thou shall be shunned, much like the elders of Gloriavale...
The prophet was cancelled for the unforgivable crime of speaking The Truth.
Perhaps he was even betrayed for thirty pieces of silver.
Looks like he also got cancelled from the property investors group. I guess the people that manage that site didn't like his message once it started becoming true
Sounds like the government may be involved, easy to tell if the prophet accused of 'misinformation' before the predictions all came true
I think there’s at least another 10% to fall, and in a couple of years interest rates will be lower again.
just my opinion, but if I was a FHB I would be looking now but only buying if the price was at least 20% below peak value. Otherwise I would be thinking late winter 2023.
Yeah... I am gunning about July/August 2023.
But yes, true, if it happens to you to find a really good deal it's not completely foolish to do it now. (just cross your fingers rates don't go up another 100%, unlikely but not impossible, as said in another comment)
Sounds like you're providing advice HM - qualified to do this? Shame for anyone who listens as you'll flip flop on it in the coming weeks...
I think you'll find I never tell people what they should do unlike yourself...
Less than a fortnight ago he predicted Auckland house prices didn't have much further to fall, maybe another 5%.
Yep. And so what? That’s still what I think. Down about 20% already, another 5% to go.
The regions are where falls of a further 10-15% are still to come.
So you are saying Auckland prices for FHB are down 20% already??, but the numbers in this article show a 12% drop from peak.
House Mouse you are quite rightly justified in changing your forecast in the last week since the Fed announcement and swap/bond market increases. Look at the big increases in the 10 yr bonds this week. The election polling by august next year will be crucial, looks like the Nats want to bring back the old formula of investment housing not being treated like a business (which it is) by removing tax, flooding the immigration again (so we cant drive down the road), and bashing down the minimum wage.
You aren’t very smart are you? Comprehension not your strong point at all is it?
I said ‘in my opinion’ and ‘if I was a FhB’
I think you have just proven you are a troll. I have no further interest to engage.
have a nice day
It's a fine line between opinion and advice, you're treading it like TA and Church...
Good day sir.
Rising house prices and falling interest rates mean one thing: the earlier you buy the better. So why can't the opposite be true?
... people are not skilled at catching a falling knife ... best to wait till its clearly finished its drop ... then , calmly pick it up ...
FOMO is dead : FOOP reigns supreme ...
Good in theory GBH. I have heard of many who thought that prices would come down further only to find that they didn't.
how did you hear of these 'many'?
... prices have not stopped falling ... so , the further to fall has further to run ... kind of alike a slow motion trainwreck ...
There is no need to make haste, unlike the stock market it takes time for the housing market to be fully priced in as interest rates are still trending up.
Pour yourself some whisky/wine or whatever concoction you enjoy and let the story/disaster unfold.
Would have been a benefit, if the interest rates were not climbing. In any case, housing market still rolling down hill, I would wait.
I think so, this sold at auction recently. I like the curve on that chart :D
https://homes.co.nz/address/upper-hutt/totara-park/56-larchmont-grove/B…
Yeah, parabolic at the end, just like every chart these days.
Upper Hutt, Shops are Shut.
Checkout Thames/Coromandel. Far from parabolic.
That's interesting. Not the price drop, but the fact that according to Homes, in Jan this property was almost 300k more than the average house in Totara Vale. Now it is almost 100K less than the average.
Did something catastrophic happen to the property in the interval?
Was it previously massively overvalued by Homes and does that mean the average property was also overvalued?
Have Homes yet to update the algorithm based on recent sales and the average house in Totara Vale is now worth around $550 rather than 700+?
Sale price back to 2018 at least!!!
More to come. Interest rates need a couple of big lifts to get us away from the damage 55c to the USD will do to the wider economy. Sellers still in denial, will be facing a brutal truth and the "capitulation" part of the bubble curve when FLP is closed off in Dec. At that point the truth will arrive.
We still have DTi to implement as well...
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