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NZ housig market gives first-time buyers a whiff of opportunity

Ainsley Thomson

New Zealand’s house price slump has given first-time homebuyers a welcome leg up in their quest to purchase a property, but it may be a short-lived opportunity.

For a certain segment of the nation’s would-be homeowners – those armed with sizable deposits and solid incomes – 2023 has been a heartening year. First-time buyers grabbed a record 26 per cent share of the market in the third quarter, CoreLogic New Zealand says.

Houses in the Herne Bay district of Auckland. New Zealand property has become more affordable this year, but the clock is ticking. Bloomberg

An 18 per cent fall in house pricesbetween November 2021 and May this year made homeownership more obtainable, and also working in their favour has been strong wage growth, a possible peak in interest rates, an easing of lending rules and government policy changes.

“This is the way I’ve been putting it to the young buyers: this is a window of opportunity,” said independent New Zealand economist Tony Alexander. “This is good as it gets.”

But Mr Alexander has further words of caution for those looking to get on the housing ladder: the clock is ticking.

The housing market in New Zealand, population about 5.1 million, has a tendency to garner outsized attention – it became a poster child of the pandemic housing boom when prices rose close to 30 per cent in 2021, then a bellwether when they unravelled last year.

Buying a first home in NZ mirrors the experience in many other countries – often a frustrating cycle of scrimping and saving for a deposit, only to see home prices rise faster than savings, or plans thwarted by changes to lending rules. That makes this year’s opportunity stand out as an example of how the right market conditions, coupled with policy changes, can lift the group’s prospects.

First-time purchasers are now also taking their chances in other countries – in the US they have taken a bigger share of the nation’s frozen housing market, according to a survey by real estate marketplace Zillow, while in Britain, the cohort made up the largest chunk of property purchases with a mortgage last year.

Buyer’s market

Shevaun Price is one New Zealander who has grabbed the opportunity. The 25-year-old lawyer and her husband, Ryan, just moved into their newly built home about in Te Puke, a small town about 30 minutes south of the city of Tauranga in the north-east of New Zealand’s North Island.

“It was definitely a buyer’s market,” she said from the three-bedroom, two-bathroom home, which cost them just over $NZ700,000 ($650,000). “It was nice that we could just take our time to find a house and get something that was right for us. Not having to just jump on something because it’s the first thing we saw.”

That’s not to say it’s been an easy ride – mortgage rates are in the region of 7 per cent to 8 per cent, more than double what they were two years ago – but there has been a whiff of opportunity.

That opportunity, though, may soon be snuffed out. Home prices, which had been expected to fall into next year, have stabilised, and the central bank forecasts they will rise this year as a surge in immigration and the prospect that interest rates are at, or near, the peak for this cycle gives buyers confidence. Kiwis tend to fix their mortgage rates for less than three years, unlike in the US where 30-year terms are the norm, making the market particularly sensitive to rate changes.

Affordability improves

New Zealand’s general election on October 14 may also produce a result that fuels house-price gains. The current Labour government curtailed a tax loophole in 2021 that had allowed landlords to deduct mortgage interest from rental income before paying tax on it.

That had the effect of deterring some investors and helping first-time buyers snatch the record market share. If the opposition National Party, which is ahead in the polls, wins the election, it has said it will restore tax breaks for investors, and it is refusing to rule out loosening the rules prohibiting most foreigners from buying property in New Zealand.

“Those who have got the finance have found it a pretty favourable market,” Kelvin Davidson, CoreLogic NZ chief property economist, said about the current circumstances. He also pointed out that while transaction numbers were low because of slow market conditions, the fact that first-time buyers held such a significant slice of the market was still meaningful.

Mr Davidson said one upside of the fall in prices was that affordability, while still stretched, had improved. Properties in New Zealand were valued at 7.2 times the average household income in the second quarter of 2023, down from 7.8 six months earlier and well below the peak of 8.8 in the first three months of last year, CoreLogic data show.

“Suddenly, my savings were going up and house prices were going down,” said Bart Milne, 38, who is in the process of buying a house in Paraparaumu, a small commuter town about 50 kilometres north of the capital Wellington.

With a slower market, Mr Milne said he was able to knock $NZ80,000 off the price of a home listed for $NZ590,000. “As far as I know, my offer was the only offer that was ever submitted,” he said