Is it a good opportunity for first home buyers?
Whether or not it makes sense to enter the property market – or purchase another house – always depends on personal circumstances.
The current situation could provide an opportunity for first home buyers to enter the market when houses are more affordable and interest rates low.
However, the outlook is highly uncertain and it is always very difficult to pick the bottom of the cycle.
And it’s not just about house prices and interest rates; much will also depend on credit availability, income prospects, and the like.
For some, low mortgage rates may make purchasing more affordable and new opportunities may arise for some buyers with low equity, given that low loan-to-value restrictions have been removed.
Plus, lower rates of migration and reduced demand more generally may reduce competition in the market. These same factors may also encourage existing owner-occupiers to upsize.
But for some first home buyers, getting into the housing market may now unfortunately be harder.
KiwiSaver balances may be lower, there may be more hoops to jump through to get credit, and employment prospects may have changed.
And although opportunities may present themselves, we expect purchasers to be fairly cautious overall. The economic and property outlook is very uncertain, sentiment is weak, and job security has deteriorated.
What regions are most vulnerable to house price falls?
It’s hard to predict what regions will be most affected by weakness in the housing market.
There is likely to be a lot of volatility in housing market data for a time, particularly in smaller regions, given that already-low transactions there could make price signals even more erratic.
We expect that house prices will fall 10-15% with downside risk, but regions will be impacted differently.
We don’t have regional house price forecasts, but those regions that are more vulnerable to falls are:
- Those regions that are significantly exposed to international tourism, since this will not recover for a long time.
- Regions that tend to attract new immigrants and students from overseas (although people reskilling will provide a partial offset in university centres).
- Areas that have seen high rates of building recently, since the balance between supply and demand of physical housing may change more rapidly in these places.
- Areas that have seen rapid increases in house prices recently, since expectations could change more dramatically.
We have assessed each region according to some of these factors and have assigned a degree of vulnerability to each.
The most vulnerable regions are Queenstown-Lakes District, Mackenzie, Kaikoura, Westland, Taupo and Thames-Coromandel.