First-home buyers 'psyching

First-home buyers may be psyching themselves out of the market, according to new research by OneRoof.co.nz and property analysts Valocity.

Although first-home buyers made up the largest share of all new mortgage registrations in 2018, OneRoof found that there is still the perception among Kiwis that it is impossible to buy a house.

“The rapid growth in house prices in the last five years, especially in Auckland, has put groups who have yet to enter the market at a disadvantage,” OneRoof editor Owen Vaughan said.

“Would-be homeowners hear the talk about the lack of new homes and the large sums of money required for deposits and feel locked out, even give up.”

There are hurdles: deposits that the current generation are required to save are significantly higher than previous generations needed, both in dollar sums and proportion of house value.

James Wilson, director of valuation at Valocity says the narrative that it’s impossible to buy a first home can stop potential buyers in their tracks before they even start, making it a self-fulfilling prophecy.

But he says mortgage statistics show 26 per cent of buyers taking out mortgages in Auckland are first-time buyers, a little lower than the nationwide share of 28 per cent.

``So first-home buyers remain active within the residential property,” he says.

“But when we take a look at what they are buying, to build a profile of the `typical’ property the first home buyer is acquiring there are changes.”

Valocity and OneRoof research shows that in the past year (to October 2018) apartments have grown a whopping 62 per cent, flats by 13 per cent (and that’safter a 30 per cent surge from 2014/5 to 2017).

The analysis found average apartment prices of $631,000 for a floor area that still sits around 65 square metres, compared to an average property price across the whole Auckland market of $915,000.

Around the country it’s a different story.

In Dunedin, for example, average apartment prices of $295,000 are not that far below total market average of $310,000.

In Hamilton, Christchurch and Tauranga too, the spread is under $100,000,It is only Wellington where first home average of $660,000 is $200,000 more than apartments.

Wilson says across all main urban centres there are property types that can be afforded by first home buyers. He says the narrative that “it’s impossible” is dangerous.

Research by Massey University Financial Education Centre research in 2014 found that 21.8 per cent of the 2287 respondents aged 18 to 45 were not buying because of a lack of self-belief.

“The statistics don’t bear out the narrative,” says Wilson. “More than a quarter of new mortgage registrations are for first home buyers. So people who don’t buy into that narrative [of it being impossible] are able to acquire a house. In fact, first home buyers are one of the dominant participants in many markets across the country.”

A secondary narrative that leads to buyers being “psyched out” before they save is that only those with family help can buy. The Massey research found that 71 per cent bought without financial assistance from family.

Vaughan says buyers are also psyched out because a six-figure deposit sounds daunting, even though salaries are much higher than those their parents and grandparents earned.

Behavioural economist Ananish Chaudhuri, head of the Department of Economics at the University of Auckland says that it is not surprising that negative narratives make first time home buyers more reluctant.

Chaudhuri and colleague Ryan Greenaway-McGrevy, a senior lecturer in the department, point out that it’s “bloody hard” for firsttime buyers to get on the property ladder. But the negative narrative in the mix made things worse.

“For almost all of us, buying a house is the biggest investment of our lives involving significant uncertainty regarding current and future mortgage rates as well as current and future incomes,” says Chaudhuri. “It is well known that oPsa t f struggle with