First-home buyers
There is widespread agreement that first-home buyers have suffered the most in the rapid price rises of recent years.
Both the increase in values and government intervention have worked against them.
In 2012, they might have been able to get a loan with a 10 per cent deposit – or $37,000 on the average house price of $370,000.
But now, because loan-to-value ratio (LVR) restrictions reduce the amount of lending banks can do to people with a small deposit, most buyers need $108,000, or 20 per cent on the average house price of $540,000.
Bank of New Zealand chief economist Tony Alexander said there were early signs that that was changing as house price rises slowed.
He said buyers now had less competition from investors, and would feel less stress to buy quickly, thanks to the slowdown.
‘‘They may be able to grow a deposit now at a faster pace ... But capacity constraints – shortages of builders and finance for developers – mean earlier hopes of a large surge in dwelling supply in Auckland are being dashed.
‘‘Overall, they are better off because of the plateauing of prices and appearance of some price reductions from investors who had bought for quick capital gain now looking to sell out.’’
Ryan Greenaway-McGrevy, a senior economics lecturer at the University of Auckland, said it would take more than a plateau in prices to help first-home buyers.
‘‘Prices have to come down a very long way or incomes would have to increase by a substantial amount [before houses became affordable]. That’s highly unlikely.’’
Existing homeowners
New Zealanders have a significant portion of their wealth tied up in housing – about $1 trillion, to be precise. There is a mortgage on about a quarter of that.
People who bought before 2014 have had the benefit of significant capital gains. Commentators say, in real terms, house prices in some parts of the country have tripled.
But no matter how well off it makes them feel, a high house price does not really benefit homeowners, who still need to have a roof over their heads. If they sell, they must still buy in the same market.
In many cases it can make them worse off because the jump to the ‘‘next step’’ property has become bigger. Only those who can cash up can access the gains made.
CoreLogic said ‘‘movers’’ or people selling one property to move to another now represented a smaller slice of the market – from
30 per cent of the market in 2006 to 27 per cent now.
Infometrics chief forecaster Gareth Kiernan said the only clear winners were those people, usually baby boomers, who had been able to downsize or move out of urban centres to realise the gains their properties had made.
‘‘If you could cash up and realise those gains and buy a smaller, cheaper property you are a really big winner.’’
But he said that was at the expense of people at the other end of the spectrum, mostly young first-home buyers who were priced out of the market. Kiernan said many investors had also been winners if they had been able to expand their investment portfolio over the past five years and achieve significant tax-free capital gains.
CoreLogic data shows that the number of sales to investors is beginning to increase again after a couple of quarters of decline.
But Alexander warned their fortunes were changing.
‘‘Capital gains are weaker, a flattening market is generating capital losses for some as they paid
too much when purchasing, and access to credit has been reined in – not just by the Reserve Bank’s loan-to-value restrictions but bank tightening in credit more generally,’’ he said.
‘‘In addition, there is now an oversupply of developable land in Auckland. And some panic-selling of subdividable properties [that are] no longer of any immediate use to potential developers is possible if not probable in investor-dominated locations.’’
He said professional investors who had multiple properties, and were in for the very long term, were also suffering reduced access
to credit and the absence of as good a rate of capital gains.
‘‘But they are more likely to be able to hold stock through to the next upturn than small investors,’’ Alexander said.
‘‘And many of these type of investors know that as mum-anddad investors sell out cheaply to get their stress levels down there will be bargains to be snapped up.
‘‘For professional investors the market is shifting toward looking for such bargains – though access to credit will restrain their ability to buy what they might like to.’’
Greenaway-McGrevy said investors faced a problem because their rental return – the median rent received divided by median purchase price – was only about 3 per cent per year in Auckland.
That is less than they could get from a term deposit, and from that they have to cover all their expenses.
He said if price rises had stopped and capital gains were no longer a sure bet, that was not good from the perspective of those investors. Interest rates look to be on a slow upwards trajectory, which may mean further pressure.
Overseas investors have been slowed by banks’ refusal to include foreign income in affordability