Profitable resales rise for the first time in two years

The turnaround in the New Zealand housing market has led to the first rise in profitable resales in two years, CoreLogic’s Q4 2023 Pain & Gain Report shows.

The proportion of properties being resold for more than the original purchase price rose to 93.3% in Q4 last year, up from 92.4% in the previous quarter. That marks the first rise in profitable resales since Q4 2021, when it hit the peak of 99.3%.

The median gain also increased for the first time since the end of 2021, lifting to $305,000 from $297,000 in Q3. Meanwhile, the median resale loss remained significantly smaller, at $45,000 in Q4, smaller than $50,000 in the three months prior.

CoreLogic’s Chief Property Economist Kelvin Davidson said these latest figures signal that the trough for this measure of housing performance has probably passed.

“More than nine in ten properties are selling for a profit, although it must be noted this is still quite low compared to the longer-term average and reflective of the fact that national values are still about 11% below their peak,” Mr Davidson said.

“However, the higher portion of profitable resales we’re starting to see is consistent with the rise in property values themselves since September’s trough, alongside wider market forces such as the peak for mortgage rates, high net migration, a resilient labour market and easing credit conditions.”

Davidson added that hold period plays a vital role in these figures, with long ownership lengths almost inevitably resulting in a gross profit.

“It’s also important to note that for owner-occupiers, these aren’t necessarily cash windfalls, with the new equity often just recycled into the next purchase.”

There was a ‘mixed bag’ of results across the main centres. Auckland saw 90% of resales make a gross profit, up from 88.5% in Q3, breaking a run of weakening results that stretched back to late 2021. Wellington also saw a rise in profitable resales, from 91.4% in Q3 to 93.8% in Q4, likewise in Christchurch where profitable resales lifted from 95.9% to 96.5% quarter-on-quarter. However, Hamilton, Tauranga and Dunedin all saw their share of profitable resales decline a touch, reflecting the ‘patchiness’ in the market overall.

Hold period is on the rise

Properties resold for a gross profit in the three months to December 2023 had been owned for a median of 8.5 years, up from 8.3 years in Q3 2023, and notably higher than typical figures of around seven years through 2020 and 2021.

In contrast, the hold period for loss-making resales was 2.3 years, on par with recent quarters.

“Hold periods to achieve a gross profit do seem to have started to lengthen in the past few quarters, though this may have been influenced by the wider market downturn incentivising prospective vendors to hold longer in order to achieve a profit.”

“When you compare the hold period for resale losses versus resale gains, clearly a longer hold period gives time for capital gains to accumulate, whereas shorter hold periods tend to have greater risk of losses.”

“Indeed, counting back about two years from Q4 2023 takes you to the peak of the market, so any properties bought in late 2021 but sold in late 2023 faced very different market conditions in those two periods, and a greater chance of a gross loss. Presumably, many of these resellers had intended to hold for longer, but perhaps had their hand forced due to various personal circumstances,” Mr Davidson said.

Amongst the main centres, the longest hold period for resale gains was 9.6 years in Wellington, closely followed by 9.4 in Dunedin, and 9.0 apiece in Auckland and Christchurch. Tauranga was at 8.6 years, and Hamilton a little further back at 7.7. For resale losses in Q4 2023, the hold periods were generally around two years across the main centres, although Auckland was a little higher at 2.5 and Wellington 2.7.

Pain and gain by property type

Houses continue to outperform apartments/flats for resale performance, with the proportion of profitable house resales rising to 93.9% in Q4, from 93.2% in Q3. Meanwhile, 74.2% of apartments made a gross profit, relatively consistent with the prior quarter (74.3%).

“The resale performance of houses has evidently started to turn around in the past few months, and as the wider property market slowly recovers, it seems likely that apartment reselling activity will follow suit,” Mr Davidson said.

“Although around 26% of resales at a loss is a concerning figure for apartment resellers, this segment has been much weaker in past cycles,” he added.

Profit and loss by owner type

Investors saw an increase in profitable resales to 92.9%, up from around 91% at the start of 2023. Meanwhile, 92.8% of owner-occupiers made a profit, down from 93.1% in Q3 and the highest loss-making proportion since Q4 2015.

“This was an interesting contrast for owner-occupiers and investors in the final quarter of 2023. While the differences in profitable resales between investor and owner-occupiers are pretty small, one reason for the shift could be a longer hold period for investors who sold in Q4,” Mr Davidson said.

“It’s also possible that in a slightly soft market, some owner-occupiers have been willing to take the plunge and make a sale for a price less than what they paid, if they can see an opportunity to upgrade for less on their next property.”

At the national level, the median resale gain for investors in Q4 2023 was $324,500, a bit above the owner occupier figure of $295,000. And for losses, the median for investors was around $50,000, again a little above the owner occupier result of $41,500.

Download the latest Pain & Gain Report

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