First Home Buyers most active in NZ Market

We can see some clear trends emerging among buyer groups who have been most impacted by this uncertainty over the past year or so. 

Most notable within investor activity which remains subdued (Investors with three or more homes representing only 17.2% of total mortgage registrations), whereas first home buyers who have not been as impacted by proposed regulatory and legislation changes have been steadily increasing their share of the market to represent 29.3% of all new mortgage registrations). 

Those looking to buy are still able to access historically low interest rates, with the recent lowering of the OCR to 1.5% supporting this low rate environment into the foreseeable future. To add to internal demand, net migration numbers remain high and are currently trending upwards when compared to the same period last year. 

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Median House Values

At a Nationwide level, value growth is still evident within the market with the median value increasing by just under 5% to $577,000. 

This growth has been mostly fuelled by strong house price inflation in many smaller regional centres. 

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Sales Volumes

At a headline, level and within many of NZ’s main urban centres sales volumes continue to decline. 

Looking into the price level of the housing stock transacting we begin to see the emergence of new trends, in particular within some of the larger urban centres. 

At a Nationwide level, the majority of sales transact above $800,000 (32.5% of all sales), this is fuelled mostly by sales within the main urban areas.  

At the other end of the spectrum, we are seeing a surge in sales of properties under $300,000 (10.6% of all Nationwide sales), however this bracket represents only 9.4% of sales (by value of housing stock). This indicates that buyers are chasing more affordable housing stock, resulting in properties at these levels comprising an increasingly larger share of total sales. This has the potential to ‘distort’ the headline statistic for an area, making it appear that all values are declining, however in reality it’s a reflection of what’s selling. 

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The catch-up effect 

What is becoming increasingly evident in the Nationwide Statistics is the ‘catch up effect’ at play within NZ’s smaller centres. 

The housing market is similar to other asset markets in the sense that once one area becomes too expensive, buyers look for other areas to purchase.  

Within NZ we saw house price growth initial surge in Auckland, quickly following to the other large Urban Centres (Hamilton, Tauranga, Wellington, Dunedin). However given the levels of growth experienced within these areas during this period, buyers moved to the ‘next ring out’. 

We then saw house price inflation begin to surge in periphery areas such as Rotorua, Whakatane, Carterton, Upper Hutt, Invercargill, Palmerston North. 

However, whilst still strong value growth within these areas, the rate growth is beginning to stall as most of them now hold median value levels of above $400,000.  

All of the have median values (in this graph) below $400,0000. 

 

 
 

“These foundations include low mortgage interest rates (and a relaxation of LVR rules for both owner-occupiers and investors), still-high (albeit slowing) population growth, a strong labour market and a remaining deficit of new properties being built, despite very encouraging consent figures.”

— JAMES WILSON. DIRECTOR, VALUATION INNOVATION. VALOCITY.

 
 
 

 

What happens next?

The question on everybody’s lips is always, what happens next? I always start such advice with ‘Don’t panic’ – the fundamental drivers to support the NZ housing market remain in place, namely strong demand levels fuelled by strong net migration and historically low interest rates combined with a general undersupply of housing in areas needed. 

In saying that, we would expect that the rate of house price growth in the smaller regional centres to begin to slow. The main urban centres should also continue to experience stalling value growth with the largest, Auckland set to remain flat for the next couple of years. 

Buyers should focus on traditional considerations when buying a house (location, utility, school zones, rental return) and don’t base decisions or investment strategies on short term capital growth.  

 

 

Auckland 

After experiencing significant capital growth over the past five years (Median increase across all ex TA’s of nearly 50%), value levels have been flat to declining for the past 18 months – 24 months. 

Looking into the last 12 months, only Papakura and Rodney have experienced value growth of over 2% with the North Shore and Auckland Central declining by 5.5% and 1.5 respectively during the same period.  

Sales volumes continue to decline at an overall level, when we look into the composition of what is selling, we see a similar trend emerging as at a Nationwide level, being an over-representation of stock selling at lower price brackets that a year ago. The below table clearly highlights this; 

We see that the percentage of total sales occurring above $1,000,000 is consistently under the percentage of housing stock valued at those bands, whereas sales between $600,000 - $1,000,000 are over-represented when compared to the value of stock. 

When we consider the fact that first home buyers represent the largest share, over 27% of new mortgage registrations in Auckland, this makes sense as this buyer group is naturally attracted to the lower price brackets. 

The impact of this on headline value movements for an area can sometimes be misleading as it may appear a suburb is declining in value, however in reality there has just been a larger proportion of lower priced housing which has been selling. 

Going forward, we anticipate current subdued activity levels to remain across Auckland as we enter the Winter months. Periphery locations on the Southern, Northern and Western Fringe may continue to experience slow growth as buyers seek affordable housing options. 

First home buyers are expected to remain the most active buyer group and we would anticipate some renewed investor activity off the back of the removal of the CGT from the table.  

Hamilton 

After a period of rapid house price inflation where the median value in Hamilton increased by nearly 60% in five years, the rate of growth has stalled over the past 12-18 months. The median value in Hamilton now sits at $550,000 with reflects a 3.9% annual increase. 

 Hamilton’s popularity was initially fuelled by those seeking relatively more affordable housing stock than could be offered in Auckland who entered the Hamilton housing market en-masse. Whilst values have lifted significantly, over 50% of Hamilton’s housing stock is valued at less than $600,000, increasing the areas appeal among certain buyer groups. 

 Investors played a large part in the initial value surges in Hamilton, however their presence in the market has reduced to representing only 16.8% of all mortgage registrations (At their peak they represented over a quarter). First home buyers remain the most active in the market with over 30% of new mortgage registrations.  

The bulk of sales activity remains centred around Flagstaff, Hamilton East, Nawton, Chartwell and Dinsdale, with these suburbs providing housing options which appeal to first home buyers and investors alike. 

 

 

Tauranga 

Tauranga has been experiencing a period of rapid change in the key drivers of its housing market as it transitions from a traditional retiree / lifestyle market towards that of a market containing first home buyers, families and investors alike. 

This transition has fuelled rapid house price inflation, with the median value in wider Tauranga increasing over 65% over the last five years. During the last 12 months, this rate of growth has stalled somewhat to an annual growth rate of 5.6% bringing the median value to $665,000. 

The same general ‘wait and see’ approach which is prevalent in the National housing market appears to be the main driver behind plateauing of house price growth in Tauranga. However another contributing factor is reduced activity among investors, who once accounted for nearly a quarter of all new mortgage registrations dropping their share to only 18.2%. 

Whilst the majority of sales transact between $600,000 - $750,000, nearly a third of all residential property in Tauranga is valued a less than $600,000, which increases appeal among first home buyers who now account for 23.6% of new mortgage registrations. 

Wellington 

The Wellington housing remains one of the top performers among NZ’s main urban centres. The wider region came to the house price inflation party late, remaining relatively flat during the years that Auckland, Hamilton and Tauranga boomed, to then surge over the past 12-18 months.  

Annual house price growth currently sits at 8.5% bringing the median value for the area to $766,000. 

Wellington’s popularity lies in the fact that it offers relatively affordable housing options for first home buyers (Who are attracted to the area’s employment opportunities). These opportunities and the nature of employment in the area also drive a strong rental market which appeals to investors. 

This is clearly evident when we look into mortgage registrations for the region, with investors accounting for 34.6% of new mortgage registrations and investors (3 or more properties), 15.2% and those which own two properties further 13%. 

Looking into where the majority of market activity is occurring, (Te Aro, Karori, Johnsonville, Tawa, Khandallah, Churton Park) we see that the above dominant market participants have been chasing more affordable housing stock, with three of the most active suburbs having median values of less than $700,000. 

Given the relative affordability of the area and current employment opportunities, Wellington is expected to continue to experience stable growth into the Winter months.  

 

 

Christchurch 

The Christchurch housing market remains flat, a result of the residential rebuild effectively balancing current supply and demand levels.  

The median value of $445,000 remains at the same level as last year. There has been a small increase of 1.1% evident over the last three months, however this is expected to pull back over the next quarter.  

The appeal of the Christchurch housing market post-earthquake is that it provides very affordable new housing options, evident in the fact that the majority of sales transacted between $400,000 - $500,000 and nearly 60% of housing stock is valued at less than $500,000. 

This has increased the wider areas popularity among first home buyers who account for nearly 33% of new mortgage registrations, interestingly the share of new mortgage registrations to investors is one of the highest among NZ’s main urban centres at 21.8% (Three or more properties). Anecdotal evidence suggests that this is fuelled by the appeal of affordable investment stock, a relatively strong rental market and also the fact that investors are able to pick up new housing which generally attracts lower maintenance costs over a 5-10 year holding period. 

The majority of activity has centred around the same suburbs for the last two quarters, being Halswell, Saint Albans, Parklands, Woolston, Linwood. With the exception of Halswell all of these suburbs have a median value of below $500,000, showing the appetite among the first home buyers to chase affordable housing. 

Stable to flat market conditions are expected to remain in place the next 12-18 months across the city. 

Dunedin 

Dunedin remains a strong performer among the main urban centres in NZ. Annual house price inflation is currently 10.7%, making Dunedin the only ‘main urban’ experiencing double digital value growth.  

With a current median house price of $415,000 the area continues to appeal to first home buyers who currently represent over 33% of new mortgage registrations. With the majority of sales transacting between $400,000-$500,000 and over 65% of Dunedin’s housing stock valued at less than $500,000, the area is expected to remain popular among first home buyers for the foreseeable future. 

Looking into where activity has been focused, the appetite for first home buyers is clearly evident, the most active suburbs being Mosgiel, Saint Kilda, South Dunedin, Dunedin Central and Green Island; all of these suburbs have a median value of below $500,000. 

Investor activity has remained relatively stable in Dunedin, currently representing 15% of new mortgage registrations (Investors with 3 or more dwellings); investors being attracted to the area for the relatively strong rental returns. 

 

 
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James Wilson

Director of Valuation Innovation, Valocity. Passionate about driving innovative and data driven solutions within Valuation and Banking sectors. 

A Registered Valuer and continued professional development (CPD) convener for the Auckland Branch of The Property Institute of New Zealand and the New Zealand Institute of Valuers.