PHOTO: FILE
Thousands of first-home buyers who entered the housing market at its peak are now facing significant financial challenges, with many properties currently valued below their purchase price.
Recent data from CoreLogic reveals that 81 percent of homes bought by first-home buyers between October 2021 and March 2022 have decreased in value since their purchase. This decline has led to over 8,500 first-home buyers experiencing a reduction in their property’s worth, with about 2,000 of these homes now valued at more than 20 percent less than their original purchase price. This steep drop suggests that the equity these buyers initially had is likely erased.
The impact is particularly pronounced in Auckland and Wellington, where 42 percent and 10.8 percent of the devalued homes are located, respectively. Of the homes now worth over 20 percent less, two-thirds are in Auckland and 18.8 percent in Wellington.
Market Fluctuations and Financial Strain
Nick Goodall, CoreLogic’s Head of Research, expressed surprise at the high percentage of homes that have lost value. He noted that although prices had risen slightly from their lowest points, the housing market’s recovery had stalled.
“Prices haven’t shown much growth since hitting the market’s trough, leaving little room for these properties to regain lost value,” Goodall explained. While he acknowledged that this wouldn’t be an issue for most buyers unless their circumstances changed, he estimated that about 1 percent of homeowners might face a forced sale due to significant life events like job loss, divorce, or death in the family each year.
Long-Term Prospects and Immediate Challenges
Goodall emphasized that most buyers likely intended to hold onto their properties for the long term. “As long as homeowners can maintain their mortgage payments, they should be able to wait for the market to recover. Previous cycles suggest it can take upwards of five to seven years to return to peak values, and even longer if the purchase was made at the market’s height.”
However, for some, the decline in property value is making mortgage payments more challenging. Banks typically charge higher interest rates to borrowers with less than a 20 percent deposit, adding a low-equity fee or margin. This additional cost, combined with already high interest rates and other living expenses, could strain homeowners’ finances further.
During the housing boom, many buyers accepted these higher rates with the expectation of refinancing once their property values increased. The current market situation, however, has left them paying elevated rates longer than anticipated.
Suburban Shifts and Future Outlook
According to CoreLogic’s latest data, 221 of 938 suburbs have seen property values drop by at least 1 percent in the past three months, with 10 suburbs experiencing declines of at least 5 percent. Conversely, 253 suburbs reported gains of at least 1 percent, with eight showing increases of 5 percent or more. Herne Bay remains the country’s most expensive suburb, with a median value of $3.41 million.
Kelvin Davidson, Goodall’s colleague at CoreLogic, attributed the recent market stagnation to ongoing affordability issues, high mortgage rates, increasing property listings, and rising unemployment. Despite potential boosts from tax cuts and changes to loan-to-value ratio (LVR) rules, Davidson believes high mortgage rates will keep market activity subdued through 2024.
“Overall, the latest suburb-level figures confirm the market’s recent loss of momentum, setting the stage for a relatively quiet year ahead,” Davidson concluded.