The frequency of NZ property owners reselling for a profit has fallen again, as the country’s housing market downturn flows through to softer resale results.
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 Q2 this year fell to 93.1% down from 94.1% for the first three months of this year.
The figures are the lowest for any quarter since Q4 2015 and well down on the peak of 99.3%, recorded in Q4 2021. The gains themselves have reduced too, with the median profit of $290,000 well down on Q4 2021’s peak of $440,000.
CoreLogic NZ’s Chief Property Economist Kelvin Davidson said for investors, that can be a cash windfall but for most owner-occupiers gross profit is equity that needs to be recycled back into the next purchase.
He said the drop in the share of property resales being made for a profit, and the fall in the size of those profits, is widespread across owner classification, property type and geography.
“The large majority of property resellers in the second quarter of 2023 still got a price higher than what they originally paid, reflecting that most people have held their property for several years,” he said.
“What this report shows is the frequency of those gains has declined further, or in other words there’s been a rise in the proportion of resellers seeing ‘pain’ – especially if they’ve only owned the property for a short period of time.”
“It’s not surprising to see the frequency of resale gains decline further as national average property values are 13% below their peak and are now back down at mid-2021 levels. Anybody who bought a year or two ago and has sold more recently has seen market conditions change significantly.”
Hold period
Across New Zealand as a whole, properties that were resold for a gross profit in the second quarter of 2023 had been owned for a median of 8.4 years, pretty much unchanged from the previous quarter’s figure. Of the loss-making resales in Q2 2023, about 60% of those had a hold period of less than two years.
Mr Davidson said the median hold period for loss-making resales was broadly unchanged from the previous quarter.
“The most striking aspect of the median of 1.8 years means there was a tendency for recent loss-making property resales to have been originally purchased around the middle of 2021, when the market was very strong, and looked different than it does now,” he said.
“Presumably, many of these resellers had intended to hold for longer, but perhaps due to changed personal circumstances they had to sell.”
Major centre pain greatest in Auckland
Auckland vendors felt the most ‘pain’ among the main centres, where 11% of property resales in Q2 were made below the original purchase price, broadly unchanged from 11.2% in Q1 2023.
Hamilton recorded 10.7% of resales at a gross loss in Q2, up from 7.6% in Q1. Gross loss resales in Dunedin was 5.9% in Q2, while Christchurch recorded an increase in ‘pain’, from 3.7% in Q1 to 4.9% in Q2.
The median resale loss in Q2 2023 was $95,000 for Auckland, $82,500 for Wellington, and around $50,000 apiece for Hamilton, Christchurch, and Dunedin. On the flipside, the median gains were around $360,000 in Auckland, Tauranga, and Wellington, $305,000 in Hamilton, and in the mid-$200,000s in Dunedin and Christchurch.
Apartment pain on the rise
The proportion of houses being resold for a loss increased to 6.2% in Q2 2023 from 5.2% in the first quarter of the year, hitting the highest level since Q1 2016. Apartments resold for a gross loss increased to 26%, up from 24.9% in Q1 and the highest level in a decade.
“The breakdown of the pain and gain data by property type reaffirms the recent change in market conditions, with gross resale profits less common and the size of those profits down too – for both houses and apartments,” Mr Davidson said.
“There is a tendency for apartments to be resold at a loss more often than houses, perhaps reflecting a greater proportion of investor ownership but we’re not seeing signs of apartment owners ‘abandoning ship’.”
Pain & Gain outlook
Mr Davidson anticipates a further increase in the proportion of properties resold at a nominal loss, even as the wider housing market finds a floor. Due to the recent drops in house prices, a potential slow recovery back to previous levels, and the role of hold periods, the ‘pain’ indicator tends to lag house prices themselves.
As an example, he said following the Global Financial Crisis, prices started to rise again from mid-2010 but it was another nine to 12 months until the bulk of the resale ‘pain’ stopped increasing.
“A further increase in the share of property resales being made for a loss seems likely in the next few quarters, even as property values themselves stop falling,” Mr Davidson said.
“But with the labour market still robust and few signs to date of widespread mortgage repayment problems, it’s unlikely we’ll see a return to the ‘pain’ peaks of previous cycles in the near term.”
Download the latest Pain & Gain Report
CoreLogic New Zealand