A leading economist says there are a number of factors to consider around whether first-time buyers should jump into the housing market now, or wait.
It comes as the latest QV House Price index for the three months ending in July shows the national average price of a home dropped to below $1 million for the first time since September last year to $989,790.
Wellington was hit hard with a drop of 11 percent to $960,004, down by $130,000 over the quarter.
QV Operations Manager Paul McCorry said the reduction in annual growth across the country was "staggering."
One frequently asked question to economists in recent times has been whether first home buyers should buy now or continue to wait.
CoreLogic chief property economist Kelvin Davidson ran the numbers on what first home buyers should do.
"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," Davidson said.
The figures showed first home buyers are currently paying about $26,000 more in annual mortgage payments compared to mid-2020, Davidson said.
"Currently, a first home buyer (single or multiple people) earning the average household income and paying the average value for a property ($1.01m), with an 80 percent mortgage on a 'special' (high equity) rate (5.1 percent) over a 25-year term, would have annual mortgage payments of around $58,000/year, equivalent to 48 percent of their income," Davidson said.
"At the trough in mid-2020, those figures were around $32,000 and 29 percent respectively for the average valued home of about $745,000 on a mortgage rate of 2.6 percent."
Davidson ran a scenario where incomes rose by five percent, property values dropped by a further 10 percent, and mortgage rates increased by 0.5 percent (to around 5.6 percent), meaning that payments reduced to less than $55,000, or 43 percent of income.
He said if this scenario played out there "might be merit here for a would-be first home buyer to wait".
"In the event of house prices dropping by 15 percent (all else being equal), the saving on mortgage payments grows - they go from around $58,000 to less than $52,000," he said.
"However, in a scenario where prices fall by 10 percent, but mortgage rates rise by another 1 percent, the annual debt servicing cost barely changes - holding above $57,000."
But Davidson noted these indicative scenarios and the ultimate scale of house price falls and mortgage rate increases remain uncertain.
Davidson said mortgage rates have been cut recently on the back of strong banking sector competition and lower offshore financing costs.
But warned, with inflation not under control in New Zealand or overseas and further increases to the official cash rate expected, it's too early to call if mortgage rates have peaked.
Even though finances play a major role in people's decision to buy a property, it's not the only factor.
"It's obviously a good idea to actually like the house under consideration, and of course postponing the decision to buy in the hope of paying a lower price later could mean that a buyer ends up with a property that they don't like as much," Davidson said.
"Other non-monetary factors such as the value of 'wasted' time going to several open homes could be a reason not to delay for some people."
Davidson concluded these simple numbers indicated a tendency of house price falls to outweigh any further mortgage rate increases in terms of the costs faced by would-be first home buyers.
"Ultimately, however, the decision is subjective and up to the individual," he said.
"It's also important to recognise that in each of these scenarios the sums involved to service a new mortgage could still be a stretch for many would-be buyers."
