It’s definitely been an interesting few weeks in the age-old debate about investors vs first home buyers (FHBs) and who might be preventing who from entering the property market and/or putting the most upwards pressure on house prices. Generally speaking, it’s very hard to make clear conclusions about those issues. But what we can say for sure at present is that both mortgaged investors and FHBs have recently had high market shares.
Indeed, our recently-released inaugural CoreLogic NZ First Home Buyer Report highlights a range of key features about FHB activity so far this year, and one of them is that their market share of around 25% is a record high – surpassing previous peaks in 2006-07. FHB demand has been pretty strong right across the country this year, although particular hotspots have included various parts of the wider Wellington area, Waikato, and Canterbury.
A willingness to compromise on property type/location (e.g. buy a flat/apartment rather than standalone house) and also access to KiwiSaver for part of the deposit have been factors behind the strength of FHBs. On top of that, FHB demand is likely to have been boosted to some degree by would-be OE-ers (who might now be buying a property instead) as well as returning kiwis. And finally, the financial incentive to buy rather than continue to rent seems pretty strong – a typical FHB mortgage payment at present is only about $50 more per fortnight than paying rent.
What have they been paying, you might ask? This is perhaps the most interesting insight from the report. So far this year, FHBs have paid a median price of $565,000 to get on the ladder, below the median price paid across all buyer groups, but way above the all-buyer lower quartile figure of $430,000 (lower quartile means that 25% of transactions have been below $430k). In other words, this pours cold water on the perception that FHBs always start at the bottom and work their way up.
So what might lie ahead? At face value, FHBs may not directly see much change from the likely reinstatement of the loan to value ratio (LVR) speed limits (at the latest 1st March next year) – that’s because even without the LVRs for the past six months, the banks themselves have generally stuck to the 20% deposit requirement. To be fair, it’s possible that FHBs may see a few more buying opportunities open up as credit criteria tighten for investors – in fact, the banks are already tightening deposit requirements, way ahead of the formal LVR reinstatement. But of course for every individual FHB who wants to buy at present, there are many others who are equally keen – and then there’s also investors who do have the 30% deposit to keep in mind too.
It may well be the case that the key issue for FHBs (as well as any other buyer type) will continue to be the low supply of available listings, which is not giving them much choice in the market.