Inaugural report reveals first home buyers don’t always start at the bottom of the property ladder

Not only are first home buyers (FHBs) holding their ground in New Zealand’s hot housing market – they’re not all starting at the bottom of the property ladder and working their way up. The inaugural CoreLogic NZ First Home Buyer Report provides the most comprehensive analysis of buyer behaviour, and for 2020 (to date) it found that consistently, around each of the main centres and also the next 12 biggest ‘main urban areas’, the median price paid by FHBs is above the lower quartile price paid by all buyers. On a national basis, FHBs’ median price is $565,000 compared with the lower quartile figure of $430,000 across all buyers.

CoreLogic’s Senior Property Economist, Kelvin Davidson, says, “The share of purchases being made by FHBs is currently running at its highest level since our series began back in 2005. In other words, although investors are pretty active in the market at present, many FHBs are finding a way in. FHBs have also been tapping into their KiwiSaver funds, with more than 44,300 withdrawals for first home purchase in the year to March 2020, up from about 39,600 the previous year. 

“We have identified that in some cities, paying a mortgage is now cheaper than paying rent, and nationally a FHB is only paying a little more, around $47 a fortnight, to cover a mortgage compared with the cost of renting.

“It’s important to note that the number of purchases being made by FHBs has risen in recent years too. That is, their market share hasn’t continued to rise just because other buyer groups have pulled back a bit. Instead, FHBs’ market share has risen because they have genuinely become a more important driver of demand and activity in the property market.

“In terms of prices paid, the median of $565,000 paid by FHBs to date in 2020 is $54,000 less than the median price paid across all buyers – $619,000. But the fact that this is significantly higher than the lower quartile price paid across all buyers, $430,000, is interesting to see. It tells us that the ‘average’ FHB isn’t always buying in the lower tiers of the market and undermines the popular perception that FHBs generally enter at the bottom and work their way up.”

Nationally, FHBs’ market share in 2020 so far has been 24% (25% in Q3 alone), well above the average of 21% and surpassing the previous peaks of 23% in 2006-07. 

Mr Davidson says, “Access to KiwiSaver for their deposit, and a willingness to compromise on the location or type of property, and hence its cost, have been factors behind the strong market share for FHBs lately. In this post-COVID phase, returning Kiwis and would-be OE’ers have probably made a contribution to strong FHB demand as well.

“As to the types of dwellings FHBs are purchasing, houses have been the dominant category this year, accounting for 78% of all their purchases, higher than the house share across all buyers of 73%. Flats have also been slightly more important to FHBs (14%) than across all buyers (13%), but apartments, lifestyle blocks, and ‘other’ properties (e.g. home and income) have accounted for slightly smaller shares of FHB purchases so far in 2020 than for all buyers. 

“For comparison, in 2019 as a whole, houses accounted for 80% of FHB purchases and flats were 12% – so this year has seen a slight shift in FHB preferences towards smaller dwellings.”

Gina Dellabarca, Westpac NZ General Manager of Consumer Banking and Wealth, says, “The strength of the first home buyer demographic indicated by the CoreLogic NZ report is supported by Westpac’s own data. We’ve been delighted to support 5,343 FHB customers into their new homes in the past year, which was a 7% lift over the prior period. Many FHB customers have access to KiwiSaver and with the current low interest rates it can make owning their first home a very real and affordable option.”

The mortgage vs renting shift

CoreLogic has crunched the numbers on mortgage repayment costs and found that, based on the median price paid by FHBs so far in 2020, and assuming an 80% loan to value ratio mortgage (and a 2.5% mortgage rate), it’s cheaper for a FHB to pay the mortgage (excluding other ownership costs such as rates and insurance) than paying rent currently in Dunedin and Tauranga, while the difference is only $6 per fortnight in Christchurch. 

Mr Davidson says, “This is a significant shift. Nationally, it’s costing just $47 more per fortnight for a FHB to pay a mortgage than pay rent. The key point is that these figures help to illustrate why FHBs’ demand to get into the owner-occupied market has been so strong lately.”

The picture in the main centres and the provinces

As is the case at the national level, each of the main centres has seen FHBs so far in 2020 pay a median price less than for all buyers. Reflecting the fact that it has the highest prices to start with, the gap has been largest in Auckland, with FHBs paying a median so far this year of $799,000, against the median for all buyers of $890,000. The median FHB prices paid in 2020 to date have been $450,000 or less in both Christchurch and Dunedin.

The Wellington area stands out for having the highest FHB market shares so far in 2020 – but the figures also show that the share of purchases going to FHBs is above normal pretty much everywhere across the country, especially in parts of Canterbury, the wider Wellington area, and in Waikato.

Queenstown and Auckland are where FHBs have paid the highest median prices this year, at $827,000 and $799,000 respectively (although in both cases still well below the median price across all buyers). 

In the next 12 key centres around New Zealand, the activity is consistent – FHBs have been a rising presence in the market in 2020. In eight of the 12 ‘main urban areas’, the share of purchases going to FHBs this year has been higher than the average, with the largest gaps in Invercargill, Nelson, and Kapiti Coast. Gisborne, Napier, and Hastings have seen FHB market shares in line with average so far in 2020, and only Whanganui has seen FHB activity a bit below average (2020 share of 20% versus average of 21%).

Generally speaking, each of the provincial markets around New Zealand has seen the FHB % share of purchases so far in 2020 running higher than the long-term average. Areas such as South Waikato, Ashburton, Kawerau, Waikato (district), Rangitikei, Waimate, Clutha, and Wairoa stand out for having had both a high presence for FHBs this year in absolute terms and also compared with their averages. Matamata-Piako, Selwyn, Marlborough, and Opotiki have also had a high share for FHBs this year compared to their averages.

By contrast, areas such as Stratford and South Taranaki have had high market shares for FHBs this year in absolute terms, but these levels aren’t much different than ‘normal’. Meanwhile, Buller, Far North, Kaikoura, and Thames Coromandel aren’t traditionally strong markets for FHBs, and the figures for 2020 so far have been below even those low long-term averages.

Note: We define a first home buyer purchase to be where all parties involved haven’t owned property in New Zealand before and are using a mortgage to make the deal.