Is the tide turning for first-time buyers?

The housing market could be at a turning point for first-time home buyers, as mortgage interest rates move away from recent increases and prices at the bottom of the market continue to fall.

According to’s Home Loan Affordability Report, the Real Estate Institute of New Zealand’s lowest quartile national selling price, the price at which 25% of sales are lower each month and 75% higher, peaked at $670,000 last November. year. By July of this year, it had fallen back to $606,000, a drop of $64,000 (-9.6%).

The table below shows how far lower quartile prices have fallen from their highs in each region. The largest drop of $125,000 was recorded in Wellington and the smallest of $15,000 in Canterbury.

Lower prices should make it easier for first-time homebuyers to get into their own homes, as they reduce the amount of money they need for a deposit and the amount of debt they have to take on to the mortgage.

The amount needed for a 20% deposit on a lower quartile nationally priced home has fallen from its peak of $134,000 in November of last year to $121,200 in July of this year (down from $12,800 ), while the corresponding 80% mortgage size decreased from $536,000 to $484,800 over the same period (down $51,200).

In Auckland, the most expensive region in the country for housing, the amount needed for a 20% deposit on a lower-quartile-priced home has risen from its peak of $193,200 in November last year to $172,000. $ in July. That’s down from $21,200. The amount needed for an 80% mortgage fell from $772,800 to $688,000, down $84,800, over the same period.

Normally, a drop of this magnitude in the amount borrowed would also lead to lower mortgage payments, but the rise in mortgage interest rates over the same period has been so large that mortgage payments on a home priced below quartile actually increased. even if the amount borrowed has decreased. The graph below shows the evolution of the average fixed rate over two years since 2002.

The Home Loan Affordability Report estimates that payments on an 80% mortgage, $536,000 for a home purchased at the lowest quartile national price when prices peaked last November, would have been around $596 per week.

By July of this year, the amount needed for an 80% mortgage to buy a home at the bottom quartile price would have been reduced to $484,800. But the payments would be about $631 a week, or $35 more, even though the mortgage amount had gone down by $51,200. This is because interest rates have risen so sharply over the same period.

In November of last year, the average two-year fixed mortgage rate charged by the major banks was 4.08%. By July of this year, that figure had risen to 5.44%.

This essentially means that during this period, buyers at the bottom of the market have benefited from the fact that they need less for a deposit and should have borrowed less. But they would have faced increased mortgage payment costs, which in turn would limit their ability to make a purchase.

So what they gained from falling house prices they lost to rising mortgage interest rates.

However, July may have marked a turning point in this trend, with the rise in the average two-year fixed rate almost stalling at 5.44%, compared to 5.43% in June.

At the same time, bottom quartile prices continued to fall, with the national bottom quartile price declining another $24,000 from $630,000 in June to $606,000 in July.

If this trend continues, first-time home buyers will be in the money with a winning hand with lower prices, lower deposits, smaller mortgages and lower mortgage payments.

So what are the odds?

The graph below shows the monthly movement of the average two-year fixed mortgage rates charged by major banks from January 2002 to July 2022.

While the magnitude of the rise since the middle of last year is unusual, matching the decline that followed the global financial crisis in 2008, there is nothing unusual about the level of current rates.

In fact, the chart suggests that they have just returned to longer-term norms.

However, even if interest rates stabilize around current levels, house prices would need to continue to decline for first-time home buyers to begin to enjoy a significant affordability advantage.

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