First-home buyers 'fatigued', struggling to keep up with others - CoreLogic report

A new CoreLogic report suggests the Government's recent tax policy changes for investors were "well-timed" with first-home buyers "fatigued" and struggling to keep up with other buyer groups.

The Government in March revealed an array of new housing measures aimed at tilting the market away from investors and towards first-home buyers. They included extending the bright-line test out to 10 years and removing the ability for property investors to offset their interest expenses against their rental income when they are calculating their tax.

A report released by CoreLogic on Tuesday found the recent tax policy changes could be "well-timed" as first-home buyers' share of purchases in the first quarter of the year fell from 24.8 percent six months ago to 21.5 percent.

That's the lowest since the start of 2018, but still well above the 17.6 percent trough of the first quarter of 2014 when loan-to-value ratio restrictions allowed no more than 10 percent of new lending to be advanced with less than a 20 percent deposit.

"They are still active in terms of numbers of purchases, but a declining market share hints at 'fatigue' and a growing struggle to keep up with other buyer groups and also the ever-rising deposit requirements (on the back of rapidly rising property values)," the report says.

The extension to the bright-line passed into law in March, while the interest deductibility removal will come into effect from October for all investment properties purchased on or after March 27.

Prices have skyrocketed over the last year, with the latest Real Estate Institute of New Zealand (REINZ) figures showing the national median price for a property in April was $810,000, up 19.1 percent since April last year, but down slightly from a record-high in March of $826,300.

According to the new report, first-home buyers paid a median price of $650,000 in the first quarter, up from $576,500 in the 2020 calendar year, but below CoreLogic's $725,000 figure for all buyers in Q1. 

"That said, the FHB median in Q1 2021 of $650,000 was still well above the all-buyer lower quartile ($510,000), illustrating that FHBs don't always start at the bottom and work their way up," the report says.

The report also found that the average age of first-home buyers isn't rising. After dipping from 35 to 34 in 2017, it's flat-lined ever since. 

"Possible reasons for the average age of [first-home buyers] staying steady (despite growing affordability pressures) include earlier access to larger KiwiSaver pots, a willingness to move further afield or look at different/cheaper property types, as well as help from parents/family. [They] may also have begun to save earlier than in the past." 

The age of first-home buyers also tends to be higher in larger centres than in provincial New Zealand. For example, it's 35 in Auckland and 34 in Tauranga and Wellington, but 31 in areas like Manawatu, Masteron, Rangitikei and Timaru.

"One factor for this is that property values are generally lower outside the main centres and affordability measures less stretched."

REINZ has said that last month was a bumper April for house sales, but it was down on March. 

"While in part this is what we expect to happen when moving from March to April, there is definitely a wait and see approach from a number of investors and also some first-time buyers," she said on Thursday morning.

"Some of these falls in sales volumes are likely to be early signs of the LVRs slowing the market, some will be attributed to the changes announced on March 23 and some are likely to be the fact that we have the lowest level of inventory for an April month since records began."

After removing LVRs in April last year to promote cash flow during the COVID-19 pandemic, the Reserve Bank later announced they would return in an attempt to cool down the boiling housing market which went bananas over 2020.

REINZ said the number of properties available for sale decreased 19.6 percent in April compared to the same month last year. Only Gisborne saw an uplift in inventory levels, while Nelson, West Coast and the Bay of Plenty saw the biggest drops.