Young buyers returning

The biggest change in the residential real estate market in Auckland over the past month hasn't been anything to do with sales or listings but rather a firm jump in the presence of first home buyers.

The net proportion of real estate agents saying in my monthly survey that they are seeing more first home buyers in the Auckland market has risen to 30% at the end of September from 15% at the end of August. At the end of June, a net 59% of agents were seeing fewer first home buyers, so this has been a fairly rapid turnaround in a short period of time.


One of the factors contributing to improved interest from young buyers had been a decline in fixed mortgage rates of between 0.2% and 0.4%. But because of a large jump in wholesale borrowing costs around the world caused by data showing labour markets to be strong and concern about a fiscal stimulus package in the United Kingdom, interest rates have now edged back up again.

Does this slight change in the interest rate environment mean that the young buyers are going to disappear again? Probably not because other factors have also been in play.

On average in Auckland house prices have fallen 16% from their peak late last year. With such a large decline having been recorded fewer and fewer young buyers are holding back trying to pick the bottom of the house price cycle. Personally, speaking in my experience anybody who does that simply gets lucky.

Young buyers are showing an inclination to focus more on securing a property in which to raise a family rather than holding off to try and get a price which will fade into insignificance a few years down the track.

Another factor driving increased buying by young people is the easing of lending rules by Kainga Ora. We should also add in continuing evidence of a rise in construction costs and perhaps one other special but so far not consequential factor.

The National Party have promised that if they win next year's general election they will restore interest expense deductibility for residential property investors. The political opinion polls are showing national polling ahead of labour. If this situation continues we can expect investors to start coming back into the market.

So far there is no evidence that this is happening. But the measures of investor interest which I garner from my surveys of real estate agents, mortgage advisers, portfolio investors, and existing investors show that the degree of negativity which investors hold has eased substantially over the past few months.

This is something which will be interesting to watch as we head through 2023 and potentially start to see house prices rise marginally.