Recent first-home buyers face falling prices, higher interest rates

Falling house prices and rising mortgage rates are spooking aspiring homeowners, but recent first-home buyers say they have no regrets about their decision to buy.

It’s been a tough few years for people looking to buy their first home. After the first Covid lockdown in 2020, the market boomed and prices skyrocketed, as did the size of deposits required for a loan.

But the market has turned and prices are on a steady downward slide. In Auckland and Wellington, prices are down by 15.7% and 16.2% from their respective peaks in November and October.

Many recent first-home buyers who bought at peak prices may now be in negative equity, with mortgages bigger than their homes are worth, due to the persistent price falls, CoreLogic analysis suggests.

At the same time, mortgage rates have risen fast over the past year, taking short-term rates from about 2% to as much as 5%.

At the end of June, 45% of mortgages had less than one year to run on their fixed term, according to CoreLogic. And that means many first-home buyers are facing the interest they pay on their mortgage increasing significantly.

Wellington property manager Harrison Vaughan bought his first home in Johnsonville last November. It was around the market peak, and he was relieved to secure a property in the midst of the frenzy.

Wellington first-home buyer Harrison Vaughan thinks prices will go up again in the long-term.

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Wellington first-home buyer Harrison Vaughan thinks prices will go up again in the long-term.

He paid $930,000 for a three-bedroom house with a 500m² section. At the time, the greater Wellington median was $962,500, so he was happy with the price. But the homes.co.nz estimate for it is now $890,000.

“It makes me a bit uneasy that my house is worth less than when I bought it, but I’m holding for the long-term, and I think prices will slowly start to go up again, after this dip.

“My biggest concern is the flow-on effect of the equity situation. It means I can’t get money from the bank for a new bathroom and kitchen. I’ll have to find money elsewhere to do the work, or hold fire for a bit.”

The abrupt rise in mortgage rates is unsettling, he says, but when he bought he made the decision to lock in a three-year fixed rate of 3.2%.

“That gives me comfort. Some rates are starting to flatline, or drop a bit, now so, hopefully, they will have settled by the time I need to revisit mine.

“But I would feel very different if I had gone for a low, one-year rate, and was looking at a jump to above 5%. A big change in lifestyle would be necessary to accommodate it.”

Despite the changed market, he remains happy to own a home and have autonomy over his space. Not having to rely on the rental market for somewhere to live is a relief, he says.

“You don’t know what will happen in future, but being a homeowner provides more security. As long as you can afford the repayments without going broke, it is well worth it.”

In Auckland, Sophie Lawson and her husband bought their first home in Te Atatu Peninsula in March last year. They feel lucky they were able to buy at all, as well as when they did – before the market got even crazier, she says.

“We love our house and the area. It’s five minutes from the motorway, so commuting anywhere is easy. And we would definitely not like to go back to renting.”

Auckland first-home buyer Sophie Lawson is feeling the rise in mortgage rates.

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Auckland first-home buyer Sophie Lawson is feeling the rise in mortgage rates.

The prospect of negative equity has gone through their heads as prices have fallen. But they are not concerned as their house value has plateaued, rather than gone down, she says.

“For about nine months after buying, we had significant growth, so we paid $800,000, but our house is now worth $1 million. Long term, values will go up, and we plan to be here for a while before we sell.

“When we do, we will be buying and selling in the same market. And the market is turning into more of a buyers’ market, unlike last year’s crazy market, so it will be more beneficial for us when we do.”

They recently felt the pinch of rising mortgage rates when they refixed theirs, and it went from 3.2% to 4.72%. It makes a big difference to their repayments, with less now going on repaying the principal, she says.

“But when you look back at the 20% rates our parents’ generation were paying in the 1980s, it still seems pretty good. It is just we feel we are making less of a dent in our mortgage now.”

This led them to consult a financial adviser, and put a new budget and savings plan into action.

While the plan, along with the increase in the cost of living, means they have less disposable income, it will allow them to pay off their mortgage faster, Lawson says.

“It is all worth it to have our own home, and rather than paying off someone else’s mortgage, we are now building equity for our future.”

Daniel Steele is another, very recent, first-home buyer in Auckland. He moved into his two-bedroom CBD apartment, which cost $410,000, just a couple of weeks ago, and says he made the right decision to buy now.

The 21-year-old started saving to buy a home when he entered the workforce, because he wanted to get a foot on the property ladder as soon as possible.

Opting for an apartment in Auckland’s CBD allowed Daniel Steele to buy his first home.

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Opting for an apartment in Auckland’s CBD allowed Daniel Steele to buy his first home.

“I could have waited a bit longer, and saved more money, and then maybe got somewhere bigger. But, given how unpredictable the market has been in recent years, I wanted to do it when I could.”

While an apartment was not his first choice, with a deposit of $83,000 his options were limited. He says he was not prepared for how hard it would be to buy, and credits his mortgage broker for helping him do it.

“It was really stressful, and not a process I want to go through again in a hurry. My apartment is a starter home, but I’m excited to be a homeowner, and have no regrets.”

Buying so recently meant he was not affected by the jump in mortgage rates

“I have a split loan, with most of it on a fixed rate of 5.29%, and the rest on a floating rate of 6%. That seems fine to me, because I never experienced last year’s low rates, and this is what is available now.”

In Christchurch, Maeve Deacon and her sister picked up the keys for their first home at the end of July. It was the culmination of several years of scrimping, saving and then searching.

Their new home is a two-bedroom unit with a garden and a garage in Linwood, which cost $485,000. It has good bones, but needs a bit of work done, she says.

“We didn’t want a fully renovated place though. We wanted to be able to do our home up in the way we wanted, and add some value to it at the same time.”

Being able to add value gives them some support if prices do go down, and they bought in an area which looks promising in terms of long-term growth, so they are not too concerned on that front, she says.

“Mortgage rates seem more of a gamble, but it’s just the way they are. We have fixed at 4.99% for a year, and we’re okay with that. And, who knows, maybe we’ll be able to get a lower one in future.”

Christchurch first-home buyer Maeve Deacon says greater security comes with owning her own home.

KAI SCHWOERER/Stuff

Christchurch first-home buyer Maeve Deacon says greater security comes with owning her own home.

While the market might be fluctuating, they simply feel grateful they have finally been able to buy their own home, and no longer have to rent.

“It gives us a great sense of security, and knowing the money we are paying is building equity for us, and going to our financial future, instead of a landlord’s, feels good,” Deacon says.

“It was hard work, but we feel really happy to be where we are now.”

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