Which group of homebuyers is making a comeback?

Finance concerns easing, survey shows

Which group of homebuyers is making a comeback?

First-home buyers are returning to the property market, as an increasing number of real estate agents report seeing more activity from entry level buyers.

But while first-home buyers are more active, the same cannot be said for investors, who results show have been absent from the market since early 2021.

In a March real estate survey carried out by the Real Estate Institute of New Zealand and independent economist Tony Alexander (pictured above), a net 22% of real estate agents reported seeing more first-home buyers. 

It is the strongest result since the end of September, Alexander said, noting this was when the annual inflation rate increased to 7.2% (up 2.2% quarter on quarter) and expectations of rising interest rates rose.

Speaking to NZ Adviser, Alexander said the increase in first-home buyer activity was likely due to a combination of strong employment, wages growth, rising rental prices and declining house prices.

Unemployment currently sits at 3.4%, current StatsNZ figures showing all salary and wage rates grew by 4.1% in the year to the December 2022 quarter.  According to the latest CoreLogic House Price Index, property values fell 1% in February, and were 8.9% below the same time last year.

Banks are showing increased willingness to advance credit, as evidenced by special deals starting to flow through, Alexander said. And after 450 basis points of official cash rate increases over 16 months, borrowers are becoming less concerned that interest rates will go through the roof.

“It comes down to the fact that house prices have come down, incomes have gone up and [first-home buyers] are deciding ‘the numbers are starting to stack up, I’m not going to wait for the bottom of the market,’” Alexander said.

Added to that, there is now more choice for buyers, with around 28,000 properties listed for sale (compared to fewer than 14,000 in mid-2021), Alexander said.

Within the March survey, a net 57% of agents reported that house prices were declining in their area, similar to 59% reporting the same in February.

Survey results continued to show that investors were absent from the market, a trend that Alexander noted reflected strengthened LVR lending restrictions (40% deposit required for the majority of new investor lending) and phased out tax deductibility on mortgage interest expenses.

A net 17% of real estate agents reported seeing fewer people attending auctions, a slight improvement from a net 33% at the end of January.

Access to finance gradually improving

Access to finance continues to feature within buyers’ top three concerns, along with prices falling after purchase and the level of interest rates, survey results showed.

A net 66% of real estate agents said that getting finance was a concern for buyers, down from the peak of early 2022, which Alexander said indicated that borrowers found access to finance a little easier.

In a March Tony Alexander mortgage adviser survey, released on Tuesday, 39% of mortgage advisers said they found lenders more willing to advance finance – the highest on record.

This was up from 33% in February and was a significant improvement from January, when a net 7% of mortgage advisers said that mortgage finance was harder to obtain, Alexander said. 

While the latest figures are not a sign that credit is flowing, they do indicate that credit is becoming easier to obtain, Alexander said.

Fixed rate terms

With a record 90% of borrowing on fixed interest rates, an estimated 14% to roll off between April and June, mortgage advisers and their clients are making decisions on whether borrowers should refix and how long to fix for.

Talking to NZ Adviser about his recent recommendation to fix for one year but to not totally discount fixing for two years, Alexander said this was based on the expectation of monetary policy easing over 2024.

As the easing of inflation is slow, there is a possibility that interest rate cuts may be later in 2024 as opposed to earlier, which may require a balancing of the two terms, he said.

“Maybe a person splits [their borrowing] between one and two years,” Alexander said.

Are you helping more first-home buyers with finance approvals? Share your views in the comments section below.