More than a quarter of Kiwi homes sold to first-time buyers in July

1. First-home buyers continue to find a way

There’s no doubt that housing affordability and still-elevated (albeit falling) mortgage rates remain key challenges for first-home buyers, but even though first home grants are now off the table, this group just continues to find a way into the market. The latest CoreLogic Buyer Classification data shows first-home buyers accounted for just short of 27% of property purchases in July, up a touch from 26% in the second quarter of the year, and continuing to hover at around record highs. The number of first-home buyer purchases is also rising, too. From January to July this year the group purchased more than 11,000 properties, up from around 9400 in the same period last year.

It’s never easy to buy that first property, and the average age of first-home buyers has certainly been rising over time. But first-home buyers have also plenty of factors in their favour at present, including access to KiwiSaver for at least part of the deposit, reduced competition from other buyer groups, lots of listings and choice (giving them pricing power), and of course the low deposit/high loan to value ratio (LVR) lending allowances at the banks. Lately, 75-80% of the overall allowance for low deposit lending to owner-occupiers in total has actually been going to first-home buyers.

2. Sales activity rebounds after a blip in June

There were around 6300 agreed sales in July, measured across both real estate agents and private transactions. That was up by around 14% from the same month a year ago, after a 14% drop in June – which in the context of 13 months of growth prior to that (and then more growth again in July), very much makes June’s result look “quirky”, and probably related to the extra public holiday that month. Even so, the bigger picture is that sales activity remains subdued, running at levels 15-20% below normal across the first seven months of the year. Of course, that’s not surprising, given the sluggish economy/labour market and the fact that pricing power lies with buyers.

CoreLogic chief economist Kelvin Davidson: "It’s never easy to buy that first property, but first-home buyers have plenty of factors in their favour at present." Photo / Peter Meecham

3. Further weakness in the economic data

Speaking of the economy, the data released last week points to continued sluggishness. Retail sales fell in Q2, the BNZ-BusinessNZ performance of services index (PSI) showed falling activity for the fifth month in a row in July, while the NZ Activity Index from Stats NZ only managed to edge a little higher. In this environment, firms are likely to remain cautious about their costs and employment plans, which will be a natural handbrake on the housing market.

4. The first read on the impact of DTIs

The Reserve Bank will today publish the monthly mortgage lending flows data for July. This could be really interesting, given it’s the first set of data that covers the post July 1 loosening of the LVR rules and also the introduction of the debt to income (DTI) ratio restrictions. In reality, there may not be much change straightaway, but the DTI data will become more important as mortgage rates fall and people start taking out bigger loans. Our initial estimate is that DTIs won’t have much of an impact until mortgage rates get down to 5.5%.

5. Also watching jobs, confidence, and dwelling consents

There’s also a bunch of other data released this week, covering employment and building consents in July (both from Stats NZ) and business and consumer confidence for August (both from ANZ). Expect these figures to highlight the weak and patchy nature of the sectors. Even if there is a lift in positive sentiment, it’ll be coming off a low base. That said, we’ve got to start somewhere.

- Kelvin Davidson is chief economist at property insights firm CoreLogic