A turnaround in wider housing market conditions has led the portion of profitable property resales to almost stablise in Q3, after falling by almost seven percentage points in less than two years.
The latest CoreLogic NZ Pain & Gain report shows the proportion of properties being resold for more than the original purchase price – a gross profit or ‘gain’ – in Q3 2023 was 92.6%, a slight fall from 92.9% in Q2 2023, but well below Q4 2021's peak profitability of 99.3%.
The median profit of $285,000 in Q3 2023 also slimmed down from Q4 2021's $440,000, however, remains a strong result.
CoreLogic NZ’s Chief Property Economist Kelvin Davidson said most parts of the country are seeing strong, but slightly fading, property resale performance patterns, and that's widespread across property and owner types.
"The large majority of property resellers in the third quarter of 2023 got a price higher than what they originally paid, reflecting the fact that most people have held their property for several years."
He said if we break down the loss-making resales in Q3 2023, more than half of those had a hold period of less than two years.
"A relatively short hold period of one to two years means that they likely purchased at or near the peak of the market and are now selling in very different conditions."
Hold period
Across New Zealand as a whole, properties that were resold for a gross profit in the third quarter of 2023 had been owned for a median of 8.1 years, which is in line with the average of the past year.
Of the loss-making resales in the three months to September 2023, the median hold period was just 2.0 years, broadly unchanged from the previous quarter.
Mr Davidson said the median loss hold period has now been below two years since late 2021.
"In a weaker market, any owner who has bought and sold in that shorter period will be finding it tricky to re-coup their purchase price.”
"With rising interest rates, a change in an owner’s financial situation could also play a role in a short hold period to some degree and an increased risk of a resale loss," he said.
Christchurch and Hamilton saw loss-making sales reduce
Mr Davidson said the Q3 2023 data showed the emerging turnaround for property values had strengthened resale performance in some areas.
Christchurch remains the strongest among the main centres, where the share of property resales made for a loss reduced from 5.3% to 4.7%. Hamilton’s share of loss-making sales also fell, from 8.5% of resales at a gross loss in Q2 2023 to 6.9% in Q3.
The share of resales made for a loss rose from 4.8% in Q2 2023 to 7.1% in Q3 in Tauranga, and from 6.1% to 7.6% in Wellington. Dunedin also saw a rise, from 6.8% in Q2 to 7.7% in Q3.
While the 'pain' percentage was felt most In Auckland at 11.3%, that was basically a flatline from Q2's result of 11.2%.
Share made for profit increases
The share of property resales made for a gross loss increased in Q3 2023 for both owner-occupiers and investors.
For owner-occupiers, 7.0% was the national figure of resales made for a gross loss, an increase from 6.7% in Q2 2023. For investors, 8.6% made a loss in Q3, an increase from 8.0% in Q2 2023.
"Fewer owner-occupier properties are selling for a resale profit than has been the case for almost eight years, although the frequency is still quite high. Investor resales made for a loss are also at an eight-year high or the share made for a profit at an eight-year low."
The median resale gain for investors in Q3 2023 was $285,000, a bit above the owner occupier figure of $280,000. For losses, the median for investors was around $48,000, again a little above the owner-occupier result of $45,000.
Mr Davidson said there aren't major signs of owner-occupiers or investors hitting the panic buttons.
"Typically, most long-term landlords have smaller mortgages and have seen rents increase over time, which provides a degree of insulation to their existing portfolio."
Pain & Gain outlook
Mr Davidson said the latest resale performance data shows signs that the decline in the ‘gain’ proportion has petered out and might be stabilising.
"The wider property market has now found a floor and this helps to explain why the 'pain' proportion stayed relatively unchanged over the past quarter. In other words, the worst may have already passed for property resellers."
The slow rise for wider property values expected over the next six to 12 months should see resale performance improve, although might not necessarily happen straightaway.
"For most property owners who have held for a ‘typical’ period of seven to eight years, resale profits are still likely, regardless of what is happening in the wider market over shorter periods.”
"It's also important to note any resale gains for owner-occupiers aren’t necessarily cash windfalls. Instead, that equity just needs to be recycled straight back into the next purchase, unless they’re downsizing or moving to a cheaper location," he adds.
Download the latest Pain & Gain Report
CoreLogic New Zealand