First-time buyers: Should you buy now or wait for prices to drop further?

Charlotte Fielding says she's more worried about rising house prices before she can buy.


Charlotte Fielding says she’s more worried about rising house prices before she can buy.

Charlotte Fielding, wife of Wellington, prepares to begin her search for a first home.

With prices in the city falling — now below where they were a year ago — she isn’t too worried about buying in a down market.

“I’m more worried about prices going up before I have all my ducks in line to get a mortgage. I don’t know enough about real estate trends to know how long prices might go down and when we can expect them to go up. I’m glad I didn’t buy at the top, though.

She hopes to buy in six months or a year and says she will look around the Hutt area. “I’ve seen quite a few properties for under $500,000 when this time last year there was nothing under $650,000 except apartments.”

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She said she hoped to find a two- or three-bedroom unit with a small garden for her dog.

“I’ll buy a house as soon as I can, though. Trying to time the market seems too risky to me given that I’m trying to buy a house and will be in it for the long haul, not buying an investment property that I’ll be trying to make money from .

Kelvin Davidson, chief real estate economist at Corelogic, said many first-time home buyers are trying to figure out whether to buy now or wait to see if they can get a better price later.

“No doubt some may get a cheaper price in the meantime or a better house for the same price, but it’s also important to keep in mind the potentially offsetting influence of higher mortgage rates down the road,” he said. -he declares.


The fall in house prices accelerated in July, according to data from CoreLogic, with Christchurch also turning negative.

Interest rates have risen rapidly over the past year, pushing short-term rates up from around 2% to 5%.

The Reserve Bank expects the official exchange rate to peak at 4%, down from 2.5% currently.

Davidson said a first-time home buyer earning the average household income and paying the average value of $1.01 million for a property with an 80% mortgage at 5.1% over a term of 25-year loan would have repayments of $58,000 per year, or 48% of their income.

At the mid-2020 low, they would have paid $32,000 in mortgage fees and 29% of their income, for a house worth $745,000 and a mortgage rate of 2.6%.

“In a simple scenario where income increases by 5%, property values ​​drop another 10% and mortgage rates increase by 0.5% (to around 5.6%), payments are reduced to less than 55,000 $, or 43% of revenue,” he said. said.

“In other words, there might be merit here for a future FHB to wait. If house prices fall by 15% – all other things being equal – the savings on mortgage payments increases – from around $58,000 to less than $52,000. However, in a scenario where prices fall 10% but mortgage rates rise another 1%, the annual cost of servicing debt barely changes – remaining above $57,000.

But he said it was still unclear how much property prices might fall. ANZ recently raised its forecast to a decline of 15%, from 12% previously.

House prices are falling across the country.

Aaron Wood / Stuff

House prices are falling across the country.

“Overall, however, these simple numbers indicate a downward trend in house prices to outweigh any further increases in mortgage rates (if they occur) in terms of the costs borne by future FHBs.”

Economist Tony Alexander said there were people who wanted to buy but were “hiding in the shadows”, worried about access to finance, high interest rates and the prospect of further price cuts.

“If they wait longer, they think the prices could be better and they won’t feel like they’ve done anything wrong.”

He said 69% of agents said they’ve heard buyers worry about paying too much.

“At some point people are going to say prices are down 15%, maybe that’s enough. I think we’re going to get to that point by the end of the year, so that’s why I expect prices to increase by 5% to 10% next year.There are still buyers and they will come back.

He said if he were a buyer now, he would take advantage of the 104% increase in available housing stock to find a property that met his requirements.

“Once the buyers are back, the stock number will come right back. I think I may not be able to buy at the bottom, but I think I will be able to find a house where I want to raise a family.

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