As recent data reveals that many are now facing properties worth less than what they paid during the market’s peak. According to CoreLogic, a staggering 81 per cent of homes purchased by first-time buyers between October 2021 and March 2022 have seen their values decline since purchase, with approximately 18 per cent of these homeowners now holding properties worth more than 20 per cent less than their purchase price.
The impact is particularly pronounced in major cities like Auckland, where 42 per cent of affected properties are located, despite the city only accounting for 36 per cent of sales during the period. Wellington follows with 10.8 per cent of homes underwater in terms of value, with two-thirds of those still struggling more than 20 per cent below their original purchase prices.
Nick Goodall, CoreLogic’s head of research, noted that while the market has shown signs of stabilising, the earlier momentum has not been sufficient to restore lost values for these properties. He emphasised that while losing equity in a home is concerning, it shouldn’t necessarily force homeowners to sell unless their personal circumstances change drastically, such as through job loss or other unforeseen events.
However, the financial strain is palpable for those affected. Many first-home buyers who entered the market with smaller deposits—typically less than 20 per cent—now find themselves burdened with higher mortgage interest rates due to the application of low-equity margins by banks. These margins, ranging from 0.5 per cent to 0.75 per cent, add to already elevated borrowing costs at a time when overall living expenses are increasing.
For instance, Kiwibank estimates that it could take over eight years for borrowers with a 10 per cent deposit to build up sufficient equity to remove these additional costs, assuming property prices remain stagnant. This prolonged period of higher costs can significantly impact household budgets, potentially straining finances even for those not facing immediate pressure to sell.
Looking ahead, the market’s outlook remains cautious. Recent data from CoreLogic’s Mapping the Market tool shows that a considerable number of suburbs have experienced declines in property values over the past few months, reflecting ongoing affordability challenges and the burden of high mortgage rates amidst economic uncertainty.
Kelvin Davidson, another analyst at CoreLogic, highlighted that while recent policy changes, such as tax cuts and adjustments to loan-to-value ratio rules, may provide some relief, their impact on market activity and prices is likely to be muted given the prevailing economic conditions.
In conclusion, while the New Zealand property market navigates through a period of subdued activity and varying local trends, the plight of first-home buyers serves as a stark reminder of the risks associated with buying at the peak of a market cycle. As these homeowners adjust to the reality of diminished property values and higher costs, their resilience in weathering these financial challenges will be crucial in determining their long-term financial well-being.
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