First home buyers are still finding a way into the market

Date: 19 October 2018


First home buyers grew to 24% of all residential property purchases across NZ in Q3 2018, from 18% four years ago. Such growth means that for the first time, they now hold equal market share with mortgaged multiple property owners. Despite high prices, first home buyers are still managing to find a way to buy, with Christchurch and Wellington particularly popular.

CoreLogic research analyst Kelvin Davidson writes:

The full CoreLogic Buyer Classification dataset for the third quarter of 2018 has just been released, with three clear highlights.

First, the pace-setters are multiple property owners (MPOs) with a mortgage and first home buyers (FHBs). Mortgaged MPOs have increased their share of the market back to 24% in Q3. Granted, that’s lower than the figures of around 28% prior to LVR III (October 2016), but it’s still a decent increase from about 22% earlier this year. Despite extra regulatory pressure (e.g. Healthy Homes; the looming removal of negative gearing; longer-term threat of a capital gains/income tax), these figures show that new investors are still entering the market and/or existing landlords are expanding their portfolios.
% of NZ property purchases (Source: CoreLogic)
For FHBs, the rise to 24% of the market in Q3 continues the upwards trend that began back in early 2014 (see the first chart). At those levels, FHBs’ share of the market is on a par with the pre-GFC peaks*, while it’s also the first time that they have matched mortgaged MPOs. Around the main centres, key FHB markets are currently Christchurch and Wellington (see the second chart).
% of property purchases by FHBs (Source: CoreLogic)
Christchurch in particular has seen a big shift over the past year, with FHBs’ market share rising from 24% a year ago to 30% now. For NZ as a whole, it’ll be really interesting to see if FHBs can push ahead of mortgaged MPOs next quarter, driven by access to their KiwiSaver funds and also a clear financial incentive (often renting can be more expensive than a mortgage repayment, provided that the deposit hurdle can be cleared).
Annual change ($m) in gross new lending (Source: Reserve Bank of New Zealand)
Second, movers (i.e. existing owner-occupiers who are shifting house) have a relatively low share of the market in an historical context. At 27%, their share is the lowest it’s been since early 2011. The high cost to trade up, both in terms of the higher price for a newer/larger house as well as legal/moving expenses, will be a key factor keeping existing owners where they are. We also know from high levels of building consents for renovation that owners are altering rather than moving.
And third, the share of purchases going to cash MPOs has flattened off a bit in the past few quarters. This is quite a broad group, but will cover some offshore purchasers – so it’s conceivable that the foreign buyer ban has already played a role here.
Two-year fixed mortgage rates (Source:
So where to now? From a macro perspective, banks continue to gradually raise their lending activity, to both investors and owner-occupiers (see third chart). And not only are credit flows rising, but the competitive market is seeing mortgage rates fall too (see fourth chart). All else equal, we may start to see these factors flow through to uplift in the overall level of property sales activity in the coming months – that would be even more likely if the Reserve Bank relaxed the LVR speed limits later in the year. However, overall activity is unlikely to race away, so the story for the next few months at least will continue to be about the different buyer groups (and their lenders) jostling for market share.
* However, it’s also important to note that the number of FHB purchases in late 2006 and early 2007 was 11-12,000 per quarter. In Q3 2018, it was less than 7,000.

Tags: NZ realestate, first home buyers, NZ real estate news