If real estate is so expensive, why are so many first timers buying?

rally crowd large

First home buyers and investors jostle for position at an Auckland auction. (Maybe.)


Despite the cost of living, it remains very popular. This old saying has been causing eyes to roll – consequently ruining many a marriage – for years now.

Financial matters can also cause couples great stress – and buying their first house will be the biggest investment most will ever make.

Much has been written on rising house prices and lack of supply; there will be plenty more written yet.

And yet, despite the high cost of housing, it still remains popular – and data released last week suggests first home buyers are getting in on the action.


The good news

The February BNZ-REINZ Survey talks monthly to 10,000 agents about their thoughts on the market. The February edition shows a net 48 percent of agents noticing more first home buyers (to be known as ‘FHBs’ for the rest of this blog to avoid RSI) in the market. The record is 49%, set one year ago, and is up sharply on last month’s 32%.

The Survey also asks what is motivating people to buy. ‘First home’ ranks highest with 14.6% of buyers looking to start the climb. The next most popular reason is, unsurprisingly, ‘good interest rates’ with 14.3%. (‘Relationship breakdown’ comes in at 8.6%. Get some more iron in your diet.)

Wellington and Manawatu/Wanganui are dominated by FHBs (63.5% and 62.5%). And how is the fiery, foreboding fete for first timers that is Auckland? Actually, at 47.5%, it’s pretty good.

Data from First National Real Estate last week backs this up. Their January figures show FHBs make up more than 50% of buyers in Hawkes Bay, parts of Tauranga and Ilam in Christchurch. In Glendene, Auckland, 51% of homes sold were to FHBs.


The obstacles

I contacted Colleen Milne, First National’s General Manager, to find out where else Auckland’s first timers were shopping. Most areas they collect data on – including Howick, Papakura and Swanson/Waitakere – only showed 10% FHBs, while one fifth of Manukau’s sales last month were to new entrants.

Location, of course, will always factor whichever number home you’re up to. So what other challenges are facing FHBs?


If first home buyers are the lovebirds of the real estate market, investors are sometimes seen as the heartless vultures that swoop on their nests.

That’s a bit unfair. The real estate market is, even after the end of the boom in 2008, a good investment. It’s hard, therefore, to blame people for getting in on it. The advantages that come with buying a home as a business (such as lower and tax-deductible interest rates) are compelling motivations indeed.

On the other hand, Colleen Milne identifies some key differences between FHBs and investors that could preclude them from fighting to the death over every single house.

“There is no doubt that first home buyers are competing with investors,” she says. “However investors are primarily looking for that good buy returning a yield when rented. The first home buyers are more focused on holding the property understanding that this may be their family home for 10 years.”

Monday’s New Zealand Herald editorial recommends taking away the interest deductibility on rental houses. If doing this, they say, “discouraged residential property investment, lowered prices for first-home seekers and forced established home-owners to look for more productive uses of their savings, the country could be better off socially and economically.”

It will also increase rents – and despite what the Herald implies, many people would rather rent than own for a number of reasons (incidentally we explained why buying is better a while back).

There’s no sign that changing these tax rules is on the Government’s agenda, but we’ll continue to keep an open eye – and mind – on this.


Auction hammer

Colleen Milne sees the cost of auctions as another challenge for newbies.

First National auction off “appropriate properties”, she says, “but not all properties should be auctioned.

“There are excessive costs with auctioning for the buyer, legal fees, investigating titles and LIM reports, building reports and the time and disappointment. This also contributes to the cost of entry for the first home buyer.”

That isn’t to say you should boycott auctions. Ignoring what could be your perfect first home because of the method of sale would be an awful waste.

It is also hard to tell if the growing popularity of auctions will continue. The percentage of houses auctioned in Auckland last month halved from December to just below 20; this is still higher than January 2012 and as real estate expert Alistair Helm says, February’s figures will give us more solid information. The fewer auctions, it seems, the better for FHBs.


It’s a good news sandwich

Let’s end on a happy note.

The Roost home loan affordability report for first home buyers is an excellent resource and required reading for FHBs.

As of December it takes 47.5% of a 25-29 year old’s median income to pay the mortgage on a lower quartile house. If that seems tough, consider this:

In June 2007 this figure was 74.6%.

If you’re a couple looking to buy, the figure right now is 22.8%.

As the report says, “lower quartile housing is affordable for families in New Zealand when both adults work.”

Maybe that is the main reason first timers are still buying big. What is certain is it’s a good reason to keep each other sweet. Reduce your stress levels. Take him on a picnic. Surprise her with rugby tickets. And keep your eyes firmly facing frontwards.

One thought on “If real estate is so expensive, why are so many first timers buying?

  1. Pingback: February Property Report: the heat is on, real estate is busy too | Open2view

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