Valocity head of valuations James Wilson says rising interest rates are driving caution among buyers, meaning first-time buyers are facing less competition.
The New Year could bring a “silver lining” for first-home buyers, experts say.
Rising interest rates mean cautious homeowners taking their time before their next move were giving first-time buyers less competition and putting them ahead of the game.
However, more pain could be on the horizon as 55 per cent of New Zealand’s homeowners this year face the “uncertainty” of re-fixing their mortgage rates from historically low levels.
The Real Estate Institute of New Zealand’s (REINZ) latest data shows Rotorua’s median house price rose 0.7 per cent - or $5000 - in November 2022 from $680,000 in November 2021.
Tauranga’s median house price fell 9.8 per cent - or $98,000 - in November 2022 from its $1 million median in November 2021.
Valocity head of valuations James Wilson said there were no significant signs of a “surge” in summer listings.
“We are not seeing the great return to market that perhaps people would have hoped to see.”
Wilson said the rising interest rates were driving caution among buyers.
In the final months of 2022 buyers were seeking shorter settlement periods to lock in interest rates, while others who had sold were having to secure their next property fast, he said.
“People just don’t like uncertainty.”
Wilson said homeowners could face more pain after realising the impact of having to re-fix their mortgages.
“We call that the mortgage fix wave,” he said. “There is still about 55 per cent of mortgages to be fixed in the coming 12 months that will be coming off historic low rates.”
But as owner/occupiers and investors took their wait-and-see approach, first-home buyers were swooping in, he said.
“The share of first home buyers taking out mortgages has been strong in last six months.”
Once first-home buyers gained pre-approval from the banks they typically act fast, he said.
“We expect their ability to be more competitive to continue throughout summer.”
Continued cautiousness from buyers could mean fewer listings and properties to choose from but “we aren’t seeing that happen yet”.
“Overall, they are in a better position because there is far less competition for them to be buying. That is probably the silver lining of all of this is it eases competition pressure on first home buyers.”
Managing director of the Realty Group Ltd, which operates Eves and Bayleys, Heath Young said 2023 will still offer plenty of opportunity for first home buyers in the form of more choice, time, and better-priced property.
“They then have to match this with the cost of financing and balance this with their own personal situations.”
Young said market activity in the next few months would be a continuation of what happened throughout 2022.
“Properties will continue to transact at pricing that is fair and backed by the high-interest rate environment and increased supply of properties in the market.
“We are certainly seeing increased buyer activity through December which will continue to build momentum through the summer.”
Looking forward, Young said rising interest rates would continue to have an impact.
“However, I do think we are near the end of the need to raise rates further, which increases certainty for buyers.
“Increasingly vendors are accepting of the impact that interest rates and increased supply is having on their property and are adjusting their price expectations accordingly.”
Young said immigration flows in and out of the country will significantly impact demand for property through 2023.
“For the past two years, more people have left New Zealand than arrived. The focus on labour shortages and immigration along with a rebuilding tourism sector should see this trend reverse, which inherently builds demand for property. The election later next year will also have a big bearing on the property market.”
Rotorua Professionals McDowell Real Estate principal Steve Lovegrove said it was hard to tell what 2023 had in store for first-home buyers.
“I don’t know if it will be good news or bad news. It is just uncertain news.”
Ray White Rotorua owner and principal Jacqueline O’Sullivan said with house sale prices levelling out, and as more properties become available, first-home buyers were in a much better position to buy their first home without having to compete with a number of other parties.
“We would recommend that purchasers, especially first home buyers, start speaking with their mortgage broker or bank as early as possible.”
O’Sullivan said first home buyers started to disappear in November 2021 as tougher lending restrictions were introduced and it was not until September 2022 that the activity in the first home buyers price range started to come back.
December and January were traditionally slow months but February was likely when “things heat up again and business is back on track”.
Looking forward, O’Sullivan said volumes might drop and prices would adjust but people still needed and wanted to sell property.
“Time frames will expand as ‘subject to house sale’ is becoming more the norm rather than the exception. The rate increases haven’t hit as hard yet as 1 and 2-year fixed-term mortgages will probably expire in 2023.”
O’Sullivan said interest rate increases will have the biggest impact on the property market in 2023.
“We are going to see a much more cautious market, with buyers taking their time to review their options.”
In CoreLogic’s annual Best of the Best report, chief property economist Kelvin Davidson said the general outlook for the housing market remained weak in light of the Reserve Bank’s predictions the economy will enter a recession, no easing of inflation until the second half of 2023, and increases to the cash rate and unemployment.
Davidson said a higher unemployment rate and the risk that typical mortgage rates rise to well above 7 per cent will be a tricky combination for the property market and homeowners alike.
“Most importantly, for now however, there doesn’t seem to be a major risk of outright, large-scale job losses.
“Indeed, the rise in the unemployment rate in 2023 could be more about a larger labour force. Of course, being new (or returning) to the jobs market and unable to actually find a position won’t do much for borrowing ability or home-buying demand. But at least for those already in a job and with a mortgage, there should be some protection from widespread repayment problems and distressed sales.”
There was a risk the previous increases in the official cash rate (OCR) will hit suddenly and significantly in the early months of 2023, he said, which might remove the need to tighten monetary policy as much as is currently anticipated.
That scenario might result in a lower peak for mortgage rates, but it may also mean a weaker labour market and greater levels of job cuts, he said.
“With gross domestic product figures soft and mortgage rates higher it’s hard to see property sales volumes climbing too much in 2023.”
Real Estate Institute of New Zealand chief executive Jen Baird said the property market had settled throughout 2022 at a slower pace than the record levels of 2021.
“Like many parts of New Zealand, the Bay of Plenty has experienced subdued market activity throughout spring compared to usual. There has been a significant shift in sentiment driven by rising interest rates, bank lending restrictions, and growing talk of an economic downturn.
“Given the Reserve Bank has signalled further increases to the Official Cash Rate and has sent strong messages to the market to rein in spending, its likely we will see a subdued summer market also.”
But there were some bright spots for buyers, she said.
“With much more choice than last year, and less competition, buyers can take their time to find the perfect property and have an opportunity to enter a market they may have struggled to afford this time last year.
“For most people, a property purchase is a long-term investment, so if they can manage the higher interest rates over the next few years, prices are looking more attractive today.”
Buyers also had time on their side, she said.
“They are hesitant to make a decision which is slowing the pace of sales and increasing the median days to sell, so it is important sellers are realistic about their selling timeframe.”
Top sale price
Highest median value: Lynmore $938,900
Lowest median value: Fordlands $390,150
12-month change in median values: Ngongotaha -1.1%
5-year change in median values: Fordlands 109%
Shortest days on the market: Lynmore 17 days
Longest days on the market: Hillcrest 92 days
Highest median rents: Tihiotonga $580
Lowest median rents:
Hillcrest $450
Glenholme $450
Utuhina $450
Source: CoreLogic’s Best of the Best report
Westpac's conduct affected a total of 24,621 customers.