House price falls: Who scored the best bargains in the worst market since the GFC?

1. First-home buyers getting more for their money

First-home buyers’ share of the market in the first three months of 2023 was a record high 25%. Not only that, but first-home buyers secured more standalone houses than before – 75% of their purchases in Q1 2023 versus 71% a year ago – and are paying lower prices. According to the latest CoreLogic First Home Buyer Report, the median price paid by first-home buyers nationwide in Q1 2023 was $680,000, down from $730,000 in 2022. In other words, first-home buyers are getting more for their money (although the actual number of deals done in Q1 2023 was small).

Hamilton has been the strongest first-home buyer market, with first-home buyer share of purchases in the first three months of the year hitting 33%, about nine percentage points higher than its average. First-home buyers’ share of the market also topped 30% in Wellington (versus average of 29%), while in Christchurch, Auckland and Dunedin the share of first-home buyer purchases was in line with the long-term average. The market share in Tauranga was 17%, but even this was slightly above the long-term average of 16%.

Across the main centres, standalone houses accounted for the highest share of first-home buyers’ purchases in Hamilton, at 92% in Q1 2023 (up from the long-term average of 86%). Dunedin and Tauranga also have figures of at least 90% for that property type.

Auckland had the highest median purchase price by first-home buyers in Q1 2023, at $885,000 (versus $1m a year ago), with Wellington, Tauranga, and Hamilton all ranging from $775,000 to $730,000, and Christchurch and Dunedin both sub-$600,000 ($580,000 and $531,000 respectively).

If I’m right and house prices do stop falling shortly, some would-be first-home buyers may be wondering if they’ve missed the boat. However, I wouldn’t necessarily be too concerned, given the longer-term restraints such as caps on debt to income ratios (from March/April 2024). In other words, an extended flat patch looks more likely than a sudden recovery.

2. Slow and steady for rents … for now

Stats NZ’s rent price data last week showed an increase of 2.8% in the year to April – the fourth month in a row in the range of 2-3%, which is also roughly the long-term average. So the message here is that, after a period of strong increases, rental growth has recently slowed back to normal. However, there are already anecdotes of shortages of available rentals, and given that a typical new arrival to NZ probably rents a property at least for a start, the recent surge in net migration suggests that this ‘normality’ for rental growth could soon give way to stronger increases again.

3. Migration surges even higher

On that note, last week’s migration figures from Stats NZ were more of the same. With new arrivals to NZ rising at an incredibly fast pace (and far outweighing departures), the overall net migration balance for the year to March was around 65,400 – roughly double the long-term average. Clearly, that will be adding to property demand.

CoreLogic chief economist Kelvin Davidson says debt to income ratios will limit the size of the next upturn. Photo / Peter Meecham

4. The ‘no frills’ Budget

The key event on the economic calendar this week is Thursday’s Budget 2023. The government has already said it’ll be “no frills”, with any increased spending in certain areas of the economy (e.g. flood recovery) needing to be taken from elsewhere. If so, it may not mean too much for things like monetary policy, while I’ve also seen no indications of any potential housing-related measures either – although of course, surprises do happen!

5. High debt to income ratio lending has probably remained low

Aside from the Budget, the only other scheduled release of note this week is the debt to income ratio (DTI) data for Q1 from the Reserve Bank on Thursday 3pm. Given the steps they’re taking towards imposing caps on high DTI mortgage lending from March/April next year, these figures will certainly be interesting. Lately, though, high DTI lending has fallen naturally, as prices have dropped (meaning less debt is required), incomes have risen, risk attitudes have changed on the part of both borrowers and lenders, and also simply because higher mortgage rates mean that less debt can actually be serviced from a given income anyway.

I suspect we’ll see more of the same in Q1’s data, and it’s likely to support the idea that DTIs aren’t about this cycle – they’ll be more about limiting the size of the “next upturn”, tying house price growth more closely to wages, and restraining the number of properties that somebody can own.

- Kelvin Davidson is chief economist at property insights firm CoreLogic