ANALYSIS: At the start of this year the survey of real estate agents which I run each month showed that a net 3% of agents were seeing fewer first-home buyers in the market. The latest proportion is a net 66% seeing more young buyers. This is the highest level on record and the sharp improvement is almost matched by the same jump for investors – but not the same level.
Back in January a net 55% of agents were seeing fewer investors – they were still running for the hills following the March 2021 tax changes. But now, there are exactly as many agents seeing more investors as fewer. But this 0% reading nowhere approaches the 66% reading for first-home buyers which means we can strongly state the upturn in the housing market is being driven by young buyers.
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Why are first-home purchasers so active? I would like to think my recommendation to take advantage of the absence of other buyers this past year might have played a role. But more realistically, here are some of the key things which have been at work motivating these young buyers.
The number of properties listed for sale now sits near 25,000 compared with fewer than 14,000 in the middle of 2021. There are more houses to choose from.
After sitting out of the market for two and a half years young buyers have built up bigger deposits. Their deposit growth has been assisted by strong wages growth exceeding the rise in the cost of living for them, plus high job security.
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House prices on average are 17% lower than late-2021 levels. But rents have continued to rise. The equation comparing purchase price with rents has shifted.
For now, buyers have backed away from ordering a new house to be built and are searching amongst listings of properties already constructed. This is due to some stories of unfortunate people losing deposits because of things like cost escalations, project non-completion etc. This is just a temporary situation and demand for new properties will return – perhaps late next year.
Credit has become easier to access with recent tweaking of LVR and CCCFA rules. Plus, some extra assistance is forthcoming from Kainga Ora through various schemes.
There is a feeling that mortgage rates have peaked (one day we’ll be right in this view!).
Independent economist Tony Alexander: “Extra demand will run stocks down and push prices higher.” Photo / Fiona Goodall
Now, perhaps there is some added urgency coming into play for young buyers. The political opinion polls suggest a return of investor interest expense deductibility over time and that will bring more investors back into the market.
Also, there seems to be growing awareness that while plenty of young Kiwis are leaving the country, a lot of foreigners are coming in. By adding to pressure on the rental stock they are encouraging more people to purchase a property. This extra demand will run stocks down and push prices higher.
Perhaps we should also add in increasing concerns about the availability of listings. This is something I can gauge from my monthly survey of real estate agents. In January only 9% of agents said buyers were worried about the availability of listings. Come May this rose to 25%, July 46%, and now the late-August reading in my survey is 54%. That is above the 43% three-year average. This helps explain the rise in FOMO I noted here last week.
The housing market is moving up, the media focus has shifted from falling prices to rising prices, and in the minds of many young buyers the clock is ticking away the period during which they face little competition from other buyers for property.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
