The average amount first home buyers are paying for a home dropped about $48k over the year to May

Property / news

First home buyers paying about $669,000 on average for a home and taking on a $556,000 mortgage

28th Jun 23, 11:02am by Greg Ninness

There was a jump in the number of first home buyers getting into a home of their own last month, according to the latest Reserve Bank figures.

These show mortgages were approved for 2558 first home buyers in May, up from 1883 in April (+36%).

That was not unusual because housing market activity usually increases in May compared to April. However the number of first home buyers taking out a mortgage in May this year was up 23% compared to May last year, but still down by 20% compared to the boom year of 2021.

The decision by the Reserve Bank to slightly ease loan-to-valuation ratio (LVR) restrictions on new mortgage lending form the 1st of this month may have helped to push up loan approvals for first home buyers as some of them had their finance approved with less than a 20% deposit ahead of settling the sale this month.

However, the effect of the new LVR limits was probably only small, with 781 loans approved to first home buyers with less than a 20% deposit in May. That's up 43% compared to April, while approvals to first home buyers with at least a 20% deposit were up 33% compared to April.

It may be another few months before the full effect of the changed LVR limits becomes apparent.

While there was an increase in the number of mortgages being taken out by first home buyers last month there was very little movement in either the average price they were paying for their homes or the average size of their mortgages.

Interest.co.nz estimates the average price paid by first home buyers last month was $669,000, down slightly from $672,000 in April, while their average mortgage size was $556,000, barely changed from $557,000 in April.

Over the 12 months to May the estimated average price paid by first home buyers has declined by about $48,000, while average loan amount has declined by about $40,000.

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37 Comments

by J.C. | 28th Jun 23, 11:10am 1687907436

Over the 12 months to May the estimated average price paid by first home buyers has declined by about $48,000, while average loan amount has declined by about $40,000.

Marginal buyer has been sucker punched. Effects eventually filter through across the market, except at the Great Gatsby end of the Bell curve. That comes much later and it's still one hell of a party in the right neighborhoods (on the surface anyway).

by bw | 28th Jun 23, 11:33am 1687908788

It's still a tragedy.

$48k is an insignificant 'saving' when amortised over a lifetimes work effort. A $335,000 lower FHBer entry price is a better start to family formation. I.e. Prices of half what they are today, and 'only' back to where they were 15 years ago (when they were still out of whack with social and economic fundamentals. It's not me telling you that, but quoting John Key, who ran that as a campaign publicising the fact back in 2007), and before the lunacy of QE took hold. But fear not, FHBers, those days are coming again.

by J.C. | 28th Jun 23, 11:32am 1687908754

Most people don't think about how the bubble influences the value of money and the the value of labor exchange on the way up. Even on the relatively robust discourse on interest dot co, it's not really discussed. Because it's complicated and cannot be easily quantified. But you're simply got your head in the sand if you don't understand how credit creation for non-productive purposes on such a grand scale distorts everything.

by Nzdan | 28th Jun 23, 12:34pm 1687912450

Including things like the everyday price of a sheet of GIB or the price of roofing a house and all the other apparent "inelastic" cost inputs that go into building a house. It's not the bubble that allowed a basic house to cost $900k to build, that's just how much it costs to build a house and there are no distortions. /sarc

by J.C. | 28th Jun 23, 12:23pm 1687911833

Yeah it is. You're just not thinking about it beyond surface level.

by Nzdan | 28th Jun 23, 12:42pm 1687912942

My comment was sarcasm. I firmly believe that all components, particularly materials, have seen their profit margins grow as borrowing power has increased. Probably not evident be at the retail end (they usually get healthy rebates anyway), but certainly in manufacturing. If not their pricing teams are doing an abysmal job, particularly with how limited competition there is coupled with high demand.

I'm an Estimator for a supplier/manufacturer to the 3 waters space. We have roughly 5+ manufacturers in direct competition for our core product. We're certainly not going broke. Whack out just 3 of those competitors, and introduce low interest loans to the councils directed for 3 waters spending? We'd be making out like bandits.

by J.C. | 28th Jun 23, 1:41pm 1687916519

My comment was sarcasm.

Went over my head. Can see it now.

by Flying high | 28th Jun 23, 12:30pm 1687912205

There is a fair bit of government charges as well as profits that are in that 900k

If you that gib and roofing is too costly just revolt and don't pay it

Build a pioneer style house

by Nzdan | 28th Jun 23, 12:49pm 1687913362

Of course there are government charges. Everybody is having their slice of the cake. No revolting here, currently waiting for a reroof so not too "costly". It is what it is.

But people are suggesting the prices are what they are because the base costs are so high, what I'm saying is that's false and there's probably a huge amount of profit gouging going on driven by people's ability to borrow. Would a house cost $900k to build if the 2 year fixed mortgage rate stayed at 9.5% from 2008 to 2023?

by HughJorgan | 28th Jun 23, 1:02pm 1687914177

Absolutely agree. We were always told increased volume would lead to lower prices but the opposite has occurred.

The construction materials market needs a recession more than the employment market.

by Framan | 28th Jun 23, 2:30pm 1687919456

We have two adult siblings that have delayed or possibly chosen not to have children of their own due to the need for both partners to work to pay off the mortgage. That is common amongst their age group so I wonder what that will do to NZ demographics?

by Nzdan | 28th Jun 23, 3:44pm 1687923863

What'll happen is oldies will use it as ammunition to again berate young people, as that seems to be a pastime. We won't have enough kids to support society and the country goes broke from a bulging superannuation spend. Old people will live into their 90's, spending their final years dribbling incoherently while their caregivers from 3rd world countries with significant language barriers abuse/assault them. Once again, young people will be blamed for putting "nan in a home", but this needs to happen so they can work/pay tax towards the exorbitant social welfare and health costs.

by Crayhunter | 29th Jun 23, 1:38pm 1688002731

Me and my wife did exactly this about 13 years ago. We bought a home in NZ for $215k at 6.75% and really struggled to pay it off (both of us are professionals) we decided to go to Perth and paid it off in 8 months, then came home and started a family. This option is much less appealing now but still possible as first homes are up at $500k and pay rates are similar to 13 years ago. I think the consequence is the elderly being looked after by low quality rest homes with immigrant workers whilst their children are off living in countries with a better standard of living.

by IT GUY | 28th Jun 23, 11:54am 1687910089

The correction is in full flight......... now comes the unemployment train...

Anyone else noticed The Spruikers always talk about investing for the long term as prices free fall....

by Nifty1 | 28th Jun 23, 11:58am 1687910315

What do you suggest as an alternative IT GUY? How do you invest... oh probably a dumb question, you're too scared to.

Is an owner occupied house really an investment as well? I'd say it's more of a roof over the head for many so they can move on with life...

by IT GUY | 28th Jun 23, 12:12pm 1687911121

I suggest timing the market rather then time in the market, something you Spruikers seem inept at.....

by Retired-Poppy | 28th Jun 23, 12:36pm 1687912564

Since Speculators timed the market for maximum gains then the astute thing for First Home Buyers to do now is time the market for maximum losses - (the fallout).

by kiwimm | 28th Jun 23, 3:59pm 1687924763

Most of the speculators want the party re-started as they forgot to cash out

by IT GUY | 28th Jun 23, 8:18pm 1687940287

those who got out, got out for a reason

by mfd | 28th Jun 23, 12:48pm 1687913324

For most in NZ their house is by far their largest asset - we are generally horribly exposed to one asset class.

And then just to further concentrate risk, many seem to look to buy another residential investment property without considering the alternatives they could invest in. Bizarre behaviour.

by CN - new | 28th Jun 23, 1:45pm 1687916727

"For most in NZ their house is by far their largest asset "

Not just NZ households. This is common amongst most households in developed nations - US, Canada, UK, Australia, Ireland, Spain, Scandinavia, China, etc.

Most buyers are comfortable buying owner occupied residential real estate, rather than other assets. Some reasons that give buyer's confidence:

1) tangible asset - i.e a physical object that they can touch

2) low historical market price volatility

3) historical house prices have risen over the past 50 years or more

4) never experienced a large fall in house prices personally, so believe that house prices can't fall by much

5) ability to leverage - [from 5x initial deposit amount (i.e 20% deposit) and under some conditions up to 20x (i.e 5% deposit)]

Some papers / speeches from the RBNZ on housing:

1) Housing matters (Nov 2021): https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/…

2) Housing as an investment in NZ (June 2022): https://www.rbnz.govt.nz/hub/-/media/project/sites/rbnz/files/publicati…

3) Housing still matters (June 2022) : https://www.rbnz.govt.nz/hub/-/media/project/sites/rbnz/files/publicati…

4) How do we stack up - the NZ housing market in an international context (June 2022): https://www.rbnz.govt.nz/hub/-/media/project/sites/rbnz/files/publicati…

by huttman | 28th Jun 23, 11:50am 1687909854

oh well, the elevator has arrived!

by Dgm | 28th Jun 23, 11:51am 1687909881

Always good news when a FHB pays less for their home.. thanks to the spruikers for their inspiration...sigh..

by printer8 | 28th Jun 23, 11:54am 1687910085

The most significant issue currently facing FHB who purchased a year ago is not the $48k drop in house prices . . . . rather meeting the increase in mortgage rates.

by nktokyo | 28th Jun 23, 12:04pm 1687910653

Is the author one of the owners of interest?

by IT GUY | 28th Jun 23, 12:43pm 1687913034

Aussie AFR

Growing numbers of pandemic-era buyers are choosing to sell their properties at a loss rather than keep up with ballooning mortgage repayments in what could be an early sign of forced selling to come.

In the March quarter, 5.5 per cent of all loss-making sales were held for less than a year, more than double the 2 per cent share recorded last year, figures from data provider CoreLogic revealed on Tuesday.

During the same period, the share of loss-making sales for homes resold within two years has more than tripled to 12.4 per cent from a year ago and the trend could continue as later interest rate rises hit buyers, CoreLogic head of research Eliza Owen said.

by CN - new | 28th Jun 23, 2:51pm 1687920696

"During the same period, the share of loss-making sales for homes resold within two years has more than tripled to 12.4 per cent"

FYI, here is the positive spin on this statistic as seen previously - so 87.6% made a profit.

by IT GUY | 28th Jun 23, 12:53pm 1687913610

New Zealand’s recent crash in prices has made international headlines, but still has some way to go before it brings house prices close to pre-pandemic levels: in early 2020, the average was $755,000, spiking to $1.098m in February 2022, according to Oneroof data. The drop began after the government tightened tax rules for property investors, and the country’s reserve bank repeatedly raised the official cash rate in an effort to rein in high inflation.

Guardian happy to use the C word here......

by JimboJones | 28th Jun 23, 2:47pm 1687920425

They obviously didn't talk to Tony:

Tony Alexander: Buyer’s market is about to come to a shuddering end

https://www.oneroof.co.nz/news/43838

by Zwifter | 28th Jun 23, 3:23pm 1687922610

Looks reasonable to me. Just checked the listing in my area and they are down some 20% since when I last looked and are now tracking below average. I think the October election will be the turning point in the market if National/ACT get in and it will be up from then on.

by JimboJones | 28th Jun 23, 3:38pm 1687923486

I agree, if National get elected then property will rebound but if Labour get elected there will be a lot of rental properties hit the market at the same time causing a massive crash.

by malamah | 28th Jun 23, 3:49pm 1687924159

I think investors will try make the jump gleefully, but the bottom will fall out when the fiscal pump dries up. It might be a turning point alright.

The irony is that the only way to keep prices ticking up is to put more people in a position to buy. That illusive marginal buyer. That means a hefty increase in future cashflows, that means more money needs to be spent in the economy, that means inflation, that means higher interest rates.

Unfortunate truth is that we've borrowed so much from the future that if prices aren't going up now then there isn't a whole lot a government can to to turn it around without spending a whole lot more money. Either that or we slash interest rates and blow the whole thing up again for miniscule yield - but that is out of the remit of a government..

by HughJorgan | 28th Jun 23, 1:04pm 1687914292

The article is written with such a positive spin... wait to the FHB have zero equity, then ask them about how much less they paid.

by DTRH | 28th Jun 23, 4:01pm 1687924899

So weekly payments of 1050 plus other living cost would leave FHB struggling to make ends meet, no chance of having children for years and all 650k would buy you is a run down shack in crap area in Auckland. House prices are still falling at rapid pace best wait have a look next year prices should be down another 50k by then.

by swapacrate | 29th Jun 23, 10:25pm 1688034307

650k doesn't buy a shoe box in Auckland, even in Otara.

by hotwired | 28th Jun 23, 6:37pm 1687934270

My parents bought their new house in 1962. The section 650 sq metres was 650 pounds and the 3 bedroom house with no garage was 3600 pounds. That means land prices were approximately one fifth of the build costs. Wow haven't times changed.

by malamah | 28th Jun 23, 9:02pm 1687942975

A relic