7 reasons First-home buyers have more power in today’s market
Has the market finally moved back in favour of first-home buyers?
Nobody can tell you exactly when the property market has reached the bottom. Usually, by the time everybody agrees that the bottom has passed, prices and competition have already started moving again. But if you are a first-home buyer, it is worth looking carefully at what is actually happening in the market today. Because when you put all the pieces together, the buying conditions are very different from what we saw only a few years ago.
Lower property prices, higher incomes, more housing stock, less competition, stronger bank appetite and improved access to low-deposit lending have created a very different environment for buyers. Here are seven reasons why.
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1. Auckland property values are substantially below their peak
Auckland property values remain significantly below the levels reached during the 2021 property boom. Across many parts of Auckland, values are still around 20% to 25% or more below previous peaks, depending on location and property type.
To put that into perspective, a property that might notionally have been worth $1,000,000 near the peak could now be worth somewhere closer to $750,000 to $800,000. That is a very significant adjustment. Nobody can guarantee prices cannot fall further, but first-home buyers are now looking at property at considerably lower values than purchasers were being asked to pay only a few years ago.
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2. Once you allow for inflation, the adjustment is even bigger
This is probably the part of the equation that receives the least attention. Since 2021, the cost of almost everything around us has increased. Food, insurance, rates, building costs, wages and everyday household expenses are all materially higher than they were several years ago. House prices, however, moved in the opposite direction. When Auckland house prices are adjusted for inflation, the median house price is approximately 39% below its 2021 peak in real terms. That is an extraordinary adjustment. It means today's first-home buyer is not simply looking at a property that may be 20% to 25% cheaper in dollar terms. Relative to the overall increase in prices throughout the economy, Auckland housing is substantially cheaper again.
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3. Salaries and incomes have also moved higher
While house prices have fallen, wages and salaries have generally increased. That matters because banks assess your borrowing capacity based largely on today's income, not what you were earning several years ago. For many first-home buyers, the affordability equation has therefore improved from two directions. Property prices have fallen while household incomes have increased.
A household that might have struggled to purchase in 2021 may now be earning more while looking at a property worth materially less. That does not mean every household can automatically borrow more, because living costs, servicing rates and other commitments still matter. But it does mean the gap between income and property values has improved.
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4. Banks are actively competing for first-home buyers
This is another major difference from some previous periods. Banks are actively competing for good-quality first-home-buyer business. Several major banks currently offer cash contributions of $5,000 or more for qualifying borrowers, depending on loan size and individual lender criteria. Those contributions can make a meaningful difference when you consider the additional costs involved in purchasing your first property. These can include:
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• lawyer's fees
• building inspections
• registered valuations
• moving costs
• insurance
• other settlement-related expenses.
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In many cases, the bank contribution can offset a significant portion of those upfront costs. That is why it is important to compare the overall package rather than simply looking at the advertised interest rate. The lender offering the lowest headline rate may not necessarily provide the best overall outcome once cashback, fees and lending policy are taken into account.
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5. You do not need a 20% deposit
This remains one of the biggest misconceptions we hear from first-home buyers. Many people tell us: "I will come and see you once I have saved a 20% deposit." Our response is often: Do not automatically wait. Depending on your income, credit history, existing commitments, KiwiSaver balance and the property you want to buy, lending above 80% is readily available.
In some circumstances, lending of up to 95% of the purchase price can be considered. That means somebody with a 5% or 10% deposit may have options today. There can also be different lending considerations for new builds, Kāinga Ora-supported applications and individual bank policies. The important point is that you should not assume you are not ready simply because you do not have a 20% deposit. Let someone run the numbers first.
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6. Buyers currently have something extremely valuable: choice
One of the hardest parts of buying during the previous property boom was the lack of available housing. Buyers often had to make decisions quickly because several other people wanted the same property. Good properties could attract multiple offers almost immediately. In some cases, buyers were making unconditional offers simply to remain competitive.
Today's market is very different. Housing stock is high compared with recent years and properties are generally taking longer to sell. There has also been less pressure from migration than during the very strong post-border-reopening period, while New Zealand has experienced significant outward migration to Australia. The net result is that purchasers have more choice. That is particularly valuable for first-home buyers because they can compare properties rather than feeling pressured to buy the first acceptable option they see.
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7. Less competition creates better buying conditions
I remember the market only a few years ago. First-home buyers were regularly competing at auctions and in multi-offer situations. You could have 10, 15 or more interested purchasers looking at the same property. That environment strongly favoured sellers. It also created additional costs for buyers. You could spend money on a lawyer, valuation and building inspection and still have no idea whether your offer would actually succeed.
In the current market, buyers generally have far more negotiating power. Depending on the property and the seller, you may have the ability to:
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• negotiate the purchase price
• make the offer subject to finance
• include a building inspection condition
• arrange a valuation after the price has been agreed
• complete your due diligence before committing
• negotiate defects or issues identified during due diligence
• walk away from a property that does not stack up.
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That is a much more favourable environment for a first-home buyer.
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But isn't there still a lot of uncertainty?
Absolutely. There is uncertainty around the economy, employment, inflation, interest rates and events overseas. But it is worth remembering an important point. Some of the reasons buyers currently have greater negotiating power are the same reasons people feel uncertain about buying.
If everything in the economy looked perfect, unemployment was falling rapidly, mortgage rates were heading sharply lower and everybody believed property prices were about to surge, today's favourable conditions would probably disappear quite quickly. You would likely see:
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• more buyers entering the market
• more auctions
• more multi-offer situations
• less time to make decisions
• less negotiating power
• greater upward pressure on prices.
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You rarely get maximum certainty and maximum opportunity at exactly the same time. That does not mean property values are guaranteed to rise from here. They are not. It simply means buyers need to consider both sides of the equation. Uncertainty creates risk, but it can also create better negotiating conditions.
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Property should also be viewed over the right timeframe
A first home generally should not be viewed as a one or two-year investment. For most people, it will either be a property they own for many years or the first step towards the next property they eventually purchase. Over a 20 or 30-year ownership period there will almost certainly be recessions, elections, interest-rate cycles, periods of high inflation and property downturns. Trying to pick the precise bottom of any investment market is extremely difficult.
A more useful question may be: Can I comfortably afford to buy a suitable property today, can I service the mortgage if circumstances change, and am I likely to own property for the long term? If the answer is yes, then today's combination of lower prices, improved relative affordability, high housing stock, reduced buyer competition, bank incentives and access to low-deposit lending makes the market worth investigating.
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A real-life example
We recently helped two first-home buyers, aged just 20 and 23, purchase a tidy brick-and-tile unit in Onehunga for $562,000. They used their KiwiSaver funds together with some of their own savings to contribute a 10% deposit of $56,200. The bank funded the remaining $505,800. Their mortgage repayments will be approximately $675 per week. That is an important number because it is not dramatically different from what many people are already paying in rent for a good Auckland property. The most encouraging part of their story is how they got there. They did not receive a huge windfall and they did not wait until they had a 20% deposit. They built their deposit through a combination of:
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• part-time employment while younger
• moving into full-time work
• regular KiwiSaver contributions
• consistent savings
• keeping their living costs lower by living with parents or boarding.
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Over time, those relatively simple habits put them in a position to purchase their first property. At just 20 and 23 years old, they now own a property in Onehunga and have taken their first significant step onto the property ladder.
Their story is a reminder that buying a first home is often less about having everything perfectly lined up and more about starting early, saving consistently and understanding what lending options are actually available to you.
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You may be closer than you think
If you are thinking about buying your first home, do not automatically wait until you believe everything is perfectly lined up. You may need less deposit than you think. You may be able to borrow more than you expected. There may be lenders willing to consider your application that you were not aware of. And importantly, today's buying conditions may allow you considerably more time and negotiating power than first-home buyers had only a few years ago. The first step does not need to be buying a house. The first step can simply be understanding the numbers.
If you would like us to calculate what you could potentially afford, how much deposit you would need and which lenders may consider your circumstances, get in touch. There is no obligation to buy. Sometimes the most useful first step is simply knowing what your options are.
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Home lending is subject to lender credit criteria, affordability assessment, property acceptability, LVR and DTI requirements, and individual lender terms and conditions. Property values can rise or fall and past performance does not guarantee future performance.
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