It's been a challenging few years for first home buyers, sparked by Covid-19's first lockdown in 2020, the market boomed and prices skyrocketed as did the size of deposits required for a loan. Property research company, CoreLogic found that on an average price property with a 20% deposit on 25 year terms, households now have to spend an alarmingly high 53% of their income on servicing a mortgage.
30 September 2022
It’s been a challenging few years for first home buyers, sparked by Covid-19’s first lockdown in 2020, the market boomed and prices skyrocketed as did the size of deposits required for a loan. Property research company, CoreLogic found that on an average price property with a 20% deposit on 25 year terms, households now have to spend an alarmingly high 53% of their income on servicing a mortgage. This is the highest level recorded since CoreLogic started measuring the figures in 2004 and the long-term average of 37%.So that begs the question, how much do first home buyers need to earn to get into the market?
According to the reserve bank, current first-time buyers have an average household income of $140,000, significantly higher than the average household income nationwide. In June, the average gross income for people who own their homes was $181,000. Compared to the country’s average annual household income which was $119,500 according to CoreLogic data. Nick Goodall, the head of research at CoreLogic said from a deposit perspective and servicing the mortgage, the recent rapid house price growth had increased the gap between those who could afford to buy a first house and those that could not . This could be quite alarming. If, for example, you were an individual wanting to purchase your first home in line with the figures, you’d need to have a household income closer to that $140,000 mark. Of course as daunting as this sounds, things can change very rapidly in the housing market.
Mortgage broker, Bruce Pattern agreed that most first time buyers would not be on an average household income. He estimated that those he dealt with earn between $120,000-$180,000 per year. Another broker Glen McCloud from , said that a couple with two children and no debt or credit cards would need a joint income of 150,000 to service $800,000 mortgage. That’s pretty scary. Kelvin Davidson, the CoreLogic chief property economist mentioned among other things that it’s been driven up by the sharp rise in mortgage rates over the last year. The one-year rate lifted from an average of 2.21% in June, 2021 to 5.11% in June, 2022, he says the falls in property prices in recent months will have helped the required debt servicing costs for households. Although this effect has been slightly outweighed by the recent rise in mortgage rates themselves.
Combined with the fact that the previous buyer demand has also driven up prices, the situation we’re in at the moment has been artificially influenced by various factors to create a new set of challenges for first home buyers. We’ve noticed that in the local market, this has left many first home buyers & investors feeling sidelined from the market, compared to where things were previously. So really, we’re seeing most of the movement in the market from people that already own a home; buying or selling to upsize or downsize. The market is being reduced in terms of the number of buyers, which has taken a little bit of fuel out of the fire here in Manawatu. However, it’s a game of two halves and experience tells us that the market can change very rapidly.
The house price falls gathered a bit of pace in July, according to CoreLogic’s national data Christchurch went negative, Manawatu-Whanganui have comedown 0.1 or 0.2 of a percent over 12 months, Auckland Wellington prices down by 15 and 16% from the respect of peaks in November and October. The housing market is a cycle, and opportunities do exist. Currently, the market is swinging towards the buyers favour. Although, Falling house prices and rising mortgage rates are spooking, aspiring homeowners, recent first-time buyers say they have no regrets about the decision to buy.