First home buyers' share of the mortgage market has almost doubled over the last five years

By Greg Ninness

By any measure the residential property market is running hot as we head towards summer, with first home buyers and investors leading the charge.

According to the latest REINZ figures there were 7652 residential property sales in August, which was up 25% compared to August last year - the highest number of sales in the month of August since 2015.

Significantly, the market is hottest in the country's biggest market, Auckland, where 2612 residential properties were sold in August, up a whopping 44% compared to a year ago and also the highest number of sales for the month of August in the region for five years.

Following closely behind were Southland where sales were up 39% on a year ago, then Hawkes Bay and Wellington, both on 32% annual growth in sales.

There were only two districts where August's sales were down compared to a year ago - Gisborne -31%, which is a huge drop, but sales numbers in the district are always very low and can be more volatile than in other districts, and Otago -3% which has probably been hit by twin downturns in overseas student and tourist numbers.

The current strength of the market is also evident in prices.

The REINZ's national median selling price was $675,000 in August, up 16% compared to August last year, while the lower quartile selling price was up 18.6% over the same period.

That's strong price growth by any measure and was evident in all districts except Nelson/Marlborough where the median and lower quartile prices both increased by just 1% over that period.

Reserve Bank figures show that first home buyers and investors are the main drivers of the market's current buoyancy.

First home buyers borrowed $1.344 billion in new mortgages in August, up 46% compared to August last year, while investors borrowed $1.452 billion, up 42% compared to August last year.

Growth in lending to existing home owners was more modest.

While they are still the biggest group by value, taking out $3.931 billion in new mortgages in August, that was only up 16% compared to a year earlier.

In dollar terms the amount borrowed by owner-occupiers in August was up by $544 million in August compared to a year earlier while first home buyers' borrowing was up by $421 million and investor borrowing was up by $429 million.

That means borrowing by investors and first home buyers combined increased by $850 million in August compared to a year ago, easily overshadowing the the $544 million increase from owner-occupiers.

So there seems little doubt that first home buyers and investors are the main groups behind the current robustness of the market.

That's probably not surprising because they are also likely to be the main beneficiaries of the combination of ultra low interest rates and the removal of LVR restrictions on new mortgage lending.

Owner-occupiers will also be benefiting from reduced mortgage rates but are less likely to be concerned about LVR restrictions because they are more likely to have higher levels of equity behind them.

One of the biggest changes in mortgage lending figures over the last five years has been the increasing share of total mortgage lending taken by first home buyers, largely at the expense of investors.

In August 2015, first home buyers accounted for just 10.5% of new mortgage lending while investors accounted for 33.15% and owner-occupiers 54.7%.

In August 2020, first home buyers' share of new mortgage lending had almost doubled to 19.8%, investors' share had plunged to 21.4% and owner-occupiers' share had declined slightly to 57.9%.

So although house prices continue to rise to what what some may see as stratospheric levels, first home buyers continue to take an increasing share of the market.

This story was originally published on Interest.co.nz and is republished with permission.