Buying a house for the first time is harder than it has been in 65 years, new research shows.
In 1957, Elvis Presley released 'Jailhouse Rock', Keith Holyoake replaced Sidney Holland as Prime Minister and Wilson Whineray, one of the greatest All Blacks, made his test debut.
But it is also the last time housing affordability was so difficult for first-home buyers to reach.
Infometrics' research into housing affordability showed house prices in Tauranga, relative to incomes, were among the highest in New Zealand.
It meant the deposit hurdle and ongoing mortgage servicing costs faced by potential first-home buyers were much greater than most of the rest of the country.
The latest Real Estate Institute of New Zealand data showed in May 2022, the median house price in the Bay of Plenty increased 10.7 per cent year-on-year, to $905,000. It was $980,000 in Tauranga, $1,090,000 in the Western Bay and $647,000 in Rotorua.
Infometrics chief forecaster Gareth Kiernan said land availability issues have been a significant contributor to the city's increasingly unaffordable housing.
"The Government's new rules enabling increased intensification are likely to improve the supply of new housing over the next decade, but these changes will take several years to have an effect. They will do little to help today's first-home buyers."
Although housing affordability issues in the Bay of Plenty were not as critical outside Tauranga, house price increases over the last two decades meant housing affordability has still worsened significantly right across the region.
In general, he said it was the worst time for first-home buyers in 65 years.
The company's analysis shows that overinflated house prices have significantly increased the proportion of people's income that they will need to devote to mortgage servicing throughout the lifetime of the loan.
The prolonged housing boom since the early 2010s also meant today's buyers were likely to experience less capital appreciation in property values, which would otherwise help mitigate the high ongoing mortgage costs they are signing up for.
"There has been a long-running debate between baby boomers and millennials about
who had it tougher when trying to purchase their first home.
"Our analysis shows that even with mortgage rates below 5 per cent, the average home's million-dollar price means that today's first-home buyers face much less favourable financial outcomes than a buyer in 1987 did with interest rates of 20 per cent."
Given the increase in house prices during 2020 and 2021 and the lift in mortgage rates
since the middle of last year, average first-home buyers currently face initial mortgage
payments equal to 49 per cent of their income.
"This figure is the highest on record, surpassing the previous records of 1987 and 2007."
But the killer for current buyers was that they face committing an average of 33 per cent of their income throughout the next 25 years to repay their loan, he said.
"Young people are effectively signing themselves up for a lifetime of debt if they want to get into the housing market, with much less money left over for discretionary spending than previous generations enjoyed."
Tauranga-based The Mortgage Lab chief executive Rupert Gough said there were not a lot of Kieran's comments he could argue with.
"It's certainly the hardest time."
There were still chances for first-home buyers to reach the first rung of the property ladder but it was a question of whether they would settle for something less than what they were looking for.
It could also mean waiting until there was either an increase in earnings or savings.
Since the housing market crash in 2008, there had been times of high interest but Gough said there had not been a time like now where there was both high interest and high house prices.
He said first-home buyers should find out what kinds of assistance they might be eligible for in terms of loans and grants.
Waikato and Bay of Plenty Property Brokers regional manager Simon Short said most suburbs in Tauranga were unreachable for first-home buyers, with the median house price sitting at about $1 million.
Instead, they were moving into fringe towns, such as Te Puke.
"It's a big commitment... the bank of mum and dad is being relied on a lot more."
Rotorua's The Mortgage Centre firm director and principal advisor Praveen Bhati said there were always ups and downs in the market and he told first home buyers it was an investment.
So long as they were educated and prepared, it could be an opportunity, he said.
"You've just got to negotiate."
He said investors had disappeared from the market and it was still a time to "jump in", especially with listings having increased and house values dropping.
He recently had clients manage a $100,000 decrease in the cost of the house they were after.
"That would have been unheard of 10 months ago."
But they were also contending with increased interest rates, up to about 5.5 per cent compared to last year's 3 per cent, he said.
Owen Vaughan, editor of NZME-owned property listing site OneRoof, said it should be a dream time for first-home buyers.
But with more stock on the market, prices declining and vendors now willing to accept conditional offers, it has been hampered by a triple whammy of events outside of their control: rising interest rates, a squeeze on credit, as a result of loan-to-value ratios and Credit Contract and Consumer Finance Act, and the post-Covid property boom that added another 40 per cent to the price of real estate in New Zealand.
"Those that have credit and the salary to service what can be a large mortgage will be in a good position, but that pool of buyers will likely shrink over the coming months.
"For first-home buyers, unfortunately, now's the perfect time for cashed-up buyers - investors."
Independent economist Tony Alexander said it looked like a good piece of research, "telling us what we already know about first home buyers now and in recent years".
He said the situation will ease once interest rates peak but a number of problems came into the mix.
These included rising construction costs and rules on materials used, as well as standards to be met for energy efficiency and earthquake resilience, "along with the simple fact that population growth has exceeded growth in land supply close to CBDs".
This meant a return to old ratios of house prices to income is not going to happen, he said.
New Zealand Bankers' Association chief executive Roger Beaumont said the current economic and regulatory environment certainly affected first-home buyers.
"Rising interest rates, albeit from historic lows, have a real impact on people's ability to afford repayments on a home loan."
As responsible lenders, banks apply higher serviceability rates to test whether the borrower could still afford the loan if interest rates went up, he said.
Another big factor at the moment was the consumer lending rule change that came in last December.
"The Reserve Bank's loan-to-value lending restrictions also impact first-home buyers.
"Under those rules most owner-occupiers need at least a 20 per cent deposit for their home loan.
"If buyers are considering getting an investment property, they'll generally need a 40 per cent deposit."
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