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First-home buyers could soon be enjoying a triple sugar hit of lower mortgage rates, stable house prices and an easing of cost of living pressures, Kiwibank’s chief economist Jarrod Kerr predicts.
Kerr sees a number of positive signs for first-home buyers on the economic horizon in the coming months, and has a few tips for those wanting to own their own home.
First, he says, buying a house is a lot cheaper than it has been for some time. “It’s still very expensive, but it’s cheaper than it was a year and a half ago so that’s a big swing. The values of homes are a lot fairer, ‘a lot more sustainable’ in the Reserve Bank’s words. The market is a lot better balanced in terms of price – and buying in a soft time can be advantageous.”
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Second, he suggests that good news is on the way in terms of mortgage rates. “We want to see those mortgage rates coming off by the end of the year, not increasing. We think that the data shows the economy has turned in such a way that justifies rate cuts, not more rate hikes.”
The latest figures from the Real Estate Institute of New Zealand (REINZ) and OneRoof’s data partner Valocity suggest the housing market has already hit the bottom in many parts of the country.
The nationwide average property value dropped just 1.9% in the three months to the end of July to $943,000 – almost half the rate of decline recorded at the start of the year – while separate figures from REINZ show Auckland’s median sale price is levelling out.
For first-home buyers, the data is a strong pointer that prices will start to recover after a slump saw it tumble 17% nationwide and drop 20% in Auckland.
The end of the slump follows a topsy-turvy few years for those wanting to get a foot on the property ladder.
“We went through Covid, and then the Reserve Bank and the government stimulated the economy as best they could,” Kerr says.
“We saw record-low mortgage rates and quite a sharp increase in demand, so the housing market went through a massive boom where we saw prices jumping up 45% in just 18 months, which was absolutely staggering.
“To try and calm that down, you had some changes from the government and the Reserve Bank, playing around with rules for the banks, and then the biggest sledgehammer that the policymakers have – raising the interest rate. That all fed through to the housing market.”
Now, Kerr says, the numbers are changing again – in the buyers’ favour, this time. “We’ve seen prices come off – we’re down 17% from peak to trough so house prices are kind of back to where they were in 2021.
“We may see another couple of months of price declines, but we believe we’re in the early stages of the market recovering. We think we’re going to find a bottom in house prices relatively soon.”
And as those interest rates come down, people will be able to borrow more to buy a property or feel more comfortable about paying their mortgage. Kiwibank’s view is that the Reserve Bank, the referee in the property game, will also ease what’s called the LVR restrictions. Introduced 10 years ago, the loan-to-value ratio limits how much a bank can lend against a property.
On the other side of the coin, however, is finding that home to buy. “We have had a shortage of dwellings in New Zealand for a long time and it’s getting worse. We had a massive migration boom between 2014 and 2019 and we simply didn’t build enough homes,” says Kerr.
Kiwibank chief economist Jarrod Kerr: "There's not going to be a quick buck made in housing in the near term.” Photo / Fiona Goodall
“In 2018 we came up with the number of 100,000 houses, modelled on what population growth had done and how many houses we’d built. That’s still an issue given migration over the last year.”
He does the maths: we’re currently greeting 72,000 arrivals a year that will probably get to 100,000. “Let’s say we’ve got 2.4 people per house. There’s an extra 40,000-50,000 dwellings we need to produce, and we’re only producing 20,000-30,000. So we’re growing that shortage again and there’s pressure on the supply of rentals or houses to buy.”
As we head towards spring and then summer, when Kiwis traditionally like to buy and sell houses, the chief economist offers some upbeat news for first-home buyers.
“It’s a very personal decision as to when to pull the trigger, but I’ll say for all first-home buyers – and investors and the like – it should be a long-term decision. There’s not going to be a quick buck made in housing in the near term,” Kerr says.
“The good news at the moment is that house prices have fallen and the housing market is soft – it’s what we call a buyer’s market rather than a seller’s market.
“So sellers are having to come down and meet buyers over price, whereas it wasn’t that long ago it was very much a seller’s market and buyers were having to come up and pay that extra premium to get a house. Now it’s the other way around and sellers know that if they want to move their property, they’re having to drop down to meet buyers’ expectations.
“It’s a good time for buyers, better than it has been for quite a while. And taking that long-term view, house prices generally do pretty well over the medium to long-term in our history. Getting involved at what looks like it’s the bottom of the cycle may prove to be very good timing.”
For more information about getting into a first home, visit the Kiwibank website
