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Charlotte Fielding says she’s more worried about house prices rising before she can buy.

Wellington woman Charlotte Fielding is getting ready to start the search for a first home.

While prices in the city are dropping – now below where they were a year ago – she is not too worried about the prospect of purchasing in a falling market.

“I’m more worried about prices going up before I have all my ducks in a row to get a mortgage. I don’t know enough about real estate trends to know how long prices might drop for and when they might be expected to go back up. I’m glad I didn’t buy at the peak, though.”

She hopes to buy in six months or a year, and says she will look around the Hutt area. “I’ve seen quite a few properties for under $500,000 whereas this time last year there was nothing much under $650,000 except apartments.”

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She said she hoped to find a two- or three-bedroom place with a small garden for her dog.

“I will buy a house as soon I can, though. Trying to time the market feels too risky for me, given I am trying to buy a home and will be in it for the long term, not purchasing an investment property that I’ll be trying to make money from.”

Corelogic chief property economist Kelvin Davidson said many first-home buyers were trying to weigh up whether it was better to buy now or wait to see if they could get a better price later.

“No doubt some will be able to get a cheaper price by waiting or a better house for the same money, but it’s also important to keep in mind the potentially offsetting influence of higher mortgage rates later,” he said.

KEVIN STENT/STUFF

House price falls gathered pace in July, according to CoreLogic data, with Christchurch also going negative.

Interest rates have risen fast over the past year, taking short-term rates from about 2% to as much as 5%.

The Reserve Bank expects the official cash rate to peak at 4%, from its current 2.5%.

Davidson said a first-home buyer earning the average household income and paying the average value of $1.01 million for a property with an 80% mortgage at 5.1% over a 25-year loan term would have repayments of $58,000 a year, or 48% of their income.

At the trough in mid-2020 they would have paid $32,000 in mortgage costs and 29% of their income, for a house worth $745,000 and a mortgage rate of 2.6%.

“In a simple scenario where incomes rise by 5%, property values drop by a further 10%, and mortgage rates increase by 0.5% (to around 5.6%), payments reduce to less than $55,000, or 43% of income,” he said.

“In other words, there might be merit here for a would-be FHB to wait. In the event of house prices dropping by 15% – all else being equal – the saving on mortgage payments grows – they go from around $58,000 to less than $52,000. However, in a scenario where prices fall by 10% but mortgage rates rise by another 1%, the annual debt servicing cost barely changes – holding above $57,000.”

But he said it was still unclear how far house prices might fall. ANZ recently increased its forecast to a drop of 15%, from 12% previously.

Aaron Wood/Stuff

House prices are falling around the country.

“Overall, though, these simple numbers do indicate a tendency for house price falls to outweigh any further mortgage rate increases (if they occur) in terms of the costs faced by would-be FHBs.”

Economist Tony Alexander said there were people who wanted to buy but were “hiding in the shadows”, concerned about access to finance, high interest rates and the prospect of further price falls.

“If they wait longer they think prices might be better and they won’t feel like they’ve done something wrong.”

He said 69% of agents reported hearing buyers worried about over paying.

“At some point people are going to go ‘prices are down 15%, maybe that’s enough. I think we’re going to reach that point by the end of the year, that’s why I expect prices to rise 5% to 10% next year. There are still buyers and they will step back in.”

He said, if he were a buyer now, he would make the most of the 104% increase in available housing stock, to find a property that met his requirements.

“Once buyers return, the stock number will go right back. I’d think I may not be able to buy at the bottom but I think I am going to be able to find a home where I want to raise a family.”

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