2024: the year of the first home buyer?

CoreLogic’s Chief Property Economist, Kelvin Davidson explains that while there was a slight uptick in property prices towards the tail end of 2023, this trend was diluted by a substantial number of new homes being listed on sites like Trade Me Property in the first few months of 2024.

As ever, the laws of supply and demand meant that the increased options available to would-be home buyers has led to a slowdown in property values. In other words, the scales have swung “back in favour of buyers”.

And this is backed up by the numbers. CoreLogic’s data shows that the median house price in NZ has fallen to $695,000 in Q1 of 2024, compared to $699,000 last year and $715,000 in 2022.

As well as favourable market conditions, there’s also been a positive shift in the types of properties that first home buyers are purchasing.

Kelvin says that the evidence from 2024 so far is that the ‘typical’ first home buyer “doesn’t always enter at the bottom of the market and work their way up. Many actually enter well above the ‘bottom rung’ of the ladder”.

This is demonstrated by first home buyers purchasing greater numbers of standalone houses (i.e. bigger properties) compared to previous years, and not necessarily opting for the cheapest homes for sale in their areas. According to Kelvin, this “signals that first home buyers are getting ‘good deals’ in the current conditions”.

Interestingly, this acceleration in first home buyer activity comes at a time where paying rent is significantly cheaper than servicing a mortgage. As Kelvin says, “with mortgage rates having risen sharply, and even despite a recent acceleration in rental growth too, the extra cost to pay the mortgage compared to rent is still quite high”.

So, the fact that first home buyers are still choosing to invest in property, rather than remaining in rented accommodation, suggests that they’re likely to be purchasing for lifestyle factors, rather than simple financial reasons.

Kelvin says that first home buyers are also being savvy in how they navigate these higher mortgage rates and tougher lending conditions, by taking advantage of several schemes designed to help Kiwi get onto the ladder. These include low-deposit lending allowances at banks, making use of the First Home Grant, as well as loans.

Additionally, Kelvin suggests that first home buyers are showing flexibility by compromising on factors such as location and/or property type in order to make their home buying aspirations a reality.

It’s safe to say that current market conditions are pretty favourable towards first home buyers in NZ. Although, as Kelvin says, “it’s never easy to buy that first property”. So, what will happen down the track?

Kelvin expects the current above average first home buyer activity to continue through 2024, and possibly into 2025. This is because other buyer groups, such as investors, are still facing challenges.

That said, there’s no crystal ball when it comes to the NZ property market, and there are a few changes coming which may alter the current trajectory. These include a shorter Brightline Test from July 1st, the return of 80% interest deductions, and loosening rules governing loan-to-value ratios (LVRs) and the Credit Contracts and Consumer Finance Act (CCCFA).

To download CoreLogic’s full First Home Buyer report, check it out here.