Why first-home buyers can remain optimistic

You would be forgiven if you believed your options were in a dire situation right now off the back of media coverage. This is especially true if you had applied for your first mortgage in March to only have it expire post lockdown.

Typically, no news is good news when it comes to what is thrown from our radios and via social media. A story from on-ground Realtors and a very active Mortgage Adviser might paint a different picture, however. 

Where industries like tourism have been hit hard by the crisis, others are seeing more hopeful numbers throughout New Zealand, including retail, bars and first home buyers.

Prior to and since our last webinar, myself, Richard Withy and Rebecca Toone have been non-stop, which promoted the discussion around a live market update and advice to “act now if you’re in a position to do so”. 

Not much has changed since then and with the news on many lenders dropping the required deposit for investment property lending from 30% to 20%, this has prompted even larger volumes of home loan enquiries. And rightfully so. 

If you have good evidence your job is secure, your income too, then you may just be what the banks are looking for.

Tony Alexander, an expert economist with experience stretching back as far as 1987, is optimistic, and has traditionally has been.
In his recent column, he notes things as “going gangbusters”. 

“A number of people have noted that sales at furniture stores and motor vehicle yards are very strong and much stronger than anyone expected”. 

Alexander is fair in his approach and reports that there could be a significant drop in spend over the next six months both due to the general election and the colder months where Kiwis tend to hucker down. 

His survey released last month also indicated that up to 30% of people said, “their recent spending now was a result of delayed shopping in March”, or disrupted plans in 2020. 

This could also be true for the property market. 

Outside investors are appearing at Christchurch auctions and open homes, while first-home buyers have been very active in applying for their loans here at Loan Market. But will this trend last? 

“Last week I sent out a monthly survey request to valuers…asking them what they are seeing out there” Alexander added. 

The results? 

Low to medium-end properties remain in high demand from both investors and first home buyers. The regions are holding up very well because of demand from those two groups. Buyers have definitely pulled back from new builds as have the banks; Housing NZ however is stepping into the breach.  

He noted a net 24% of valuers said their volume of work had gone up. A net 14% of residential valuers say that they are being asked for valuations by people looking for refinancing from a lender.

It was a different story for construction, however. Valuers in both residential and commercial sectors are seeing fewer requests to give their assessment on properties proposed to be built. This tells us construction will be falling away in both sectors.

Understandably, entry-level housing is the key focus for many first-home buyers and investors now. The economic forecast has played havoc on the more upper-priced market and house and land packages, most banks have tweaked their construction loan policy and have made it harder to qualify to buy land and build. 

However, Loan Market is still obtaining approvals for land and builds, so do not be too worried if those are your plans. The bank’s assessment is just a little tougher in this market segment.

One respondent said “We have had cancellations of construction valuations where clients were going to build and have put plans on hold. Of particular concern are house and land packages where buyers are scared that in 12 months when the home is built, it may not be worth what they paid or what we valued it as in our construction valuation”.

If only these people had joined our webinar a few weeks back where I detailed the clear and steady increase in property valuation over 10, 20 and 30 years. (Skip to 9:00 minutes into review, here).

Even after four months, the main proponents of a depression view on the New Zealand housing market have capitulated. Where we expected 10-15% falls in housing prices, we are now only sitting around 5%. 

What to consider moving forward

The first thing is, and perhaps the most important, is to do your own research. Compile many opinions and take them with a grain of salt. Take your insights from a range of credible sources and build an average of what is being reported. But take it from those on the ground. 

Rebecca and Richard are the busiest they have been in a long time. I am still seeing plenty of young couples and first-home buyers make a move on their application.

The issue now rests on the available landscape.

Investors around the country are showing traits of FOMO (fear of missing out), but it is not due to price increases (as it historically is). FOMO for investors is them missing an opportunity off the back of a distressed seller needing to sell fast. 

Those distressed sellers are few and far between right now with such low interest rates on mortgages. 

Those feeling like they have more options to browse in the market right now are often disappointed when they see large numbers at open homes, and few houses suiting their requirements on the market. 

In summary, yes, now is still the time to act if you are in the market for your first home. But be aware of market availability and the banks lending criteria. 

I talk more about preparing for an application here.