Profitable resales across New Zealand have started to fall as interest rates rise and a surge in listings weighs on the property market.
CoreLogic NZ’s latest Pain and Gain report shows 98.1 per cent of properties sold for more than their purchase price in the last quarter, down from 99.1 per cent in the first quarter (Q1) of the year and 99.3 per cent in the fourth quarter (Q4) 2021.
The median resale profit also dropped to $370,000 from $418,000 in Q1 2022 and the record high of $440,000 in Q4 2021.
CoreLogic NZ Chief Property Economist Kelvin Davidson said the balance of power had shifted from sellers to buyers.
Property values have dropped, however, most resellers are still making a significant profit.
“We must put these figures into context and that is they’re still historically strong, which reflects the fact that home owners tend to hold property for seven or eight years on average, which locks in gains even as property values weaken over the short-term,” Mr Davidson said.
“Nevertheless, the turning point has arrived and for owner-occupiers, this isn’t typically a cash windfall unless they’re downsizing or moving into a cheaper location.
“Often sellers need the entire amount, and then some, to upgrade into their next property.”
The softer performance of property resales in Q2 2022 was evident across most parts of the country, as well as different property types and both owner-occupiers and investors.
Auckland saw 3.6 per cent of property resales record a gross loss, up from 1.8 per cent in Q1 2022, and the highest figure since Q3 2020 (4.5 per cent).
In Hamilton, 2.6 per cent of resales made a gross loss, up from 0.2 per cent in Q1. It was the highest figure since Q2 2020.
Wellington’s loss-making resales rose from 1 per cent in Q1 2022 to 2.2 per cent in Q2, the weakest since Q4 2016 (2.3 per cent).
Mr Davidson said Wellington’s turning point was “quite stark”, given the city’s extended period of very low loss-making proportions following the strong and extended period of growth in its property values.
Tauranga recorded 100 per cent of profit-making resales in Q1 but in the second quarter 1.1 per cent of resales incurred a loss.
Dunedin’s volume of homes sold at a loss increased from 0.2 per cent in Q1 to 1 per cent in Q2, while Christchurch edged up slightly from 0.7 per cent to 0.9 per cent.
“Again, these are low figures, but they signal a turning point for previously very strong markets,” Mr Davidson said.
“Most resellers are still getting a price well above what they originally paid – ranging from a gross profit of more than $500,000 in Auckland and Tauranga, more than $450,000 in Wellington, around $400,000 in Hamilton, and just over $300,000 in both Christchurch and Dunedin.
“But again, these are not as high as they’ve been in previous quarters.”
Profit-making resales for houses fell below 99 per cent for the first time in 18 months, with 98.5 per cent of houses resold for a gross profit in Q2 2022.
Apartment gross profit resales have fallen for three consecutive quarters from 94.6 per cent in Q3 2021 to 87.4 per cent in Q2, meaning 12.6 per cent of apartments resold during the period for less than their purchase price.
The median resale profit for a house was $366,000, and apartments achieved $196,750. In terms of losses, houses saw a median of $25,000 and apartments $74,000.
“The breakdown of data by property type reaffirms the recent change in market conditions, with gross resale profits a bit less common and losses coming a little more frequently, especially for apartments, which tend to have fewer profit-making resales compared to houses and show extra volatility as well,” Mr Davidson said.
For owner-occupiers, 99.4 per cent of resales in the first quarter of the year achieved a gross profit – but this figure dropped slightly to 98.6 per cent in the three months to June.
It is the softest figure since Q3 2020 when it was 97.3 per cent. Meanwhile, the share of investor property resales made for a gross profit in Q2 also dropped, from 99.1 per cent in Q1 to 97.6 per cent.
Across New Zealand, properties resold for a gross profit in Q2 had been owned for a median of 7.6 years.
The median hold time of between seven and eight years has held steady since mid-2018, having trended downwards from almost nine years since late 2015.
Loss-making resales in the quarter were held for a median period of just 1.3 years, down from 2.1 years in Q1 and also lower than the most recent cyclical peak of 3.6 years in Q4 2020.
“Given the relatively short hold period for these loss-making resales in the second quarter of 2022, it won’t have helped that the market has now started to fall over the past six months or so,” Mr Davidson said.
“Equally, however, given continued low unemployment, it’s unlikely that many of these were ‘stressed’ sales and are probably associated with an unexpected change in personal circumstances.”
Mr Davidson said the latest quarterly pain and gain figures reaffirm other evidence that there hasn’t been a ‘fire sale’ or a rush for the exits.
However, he is concerned about first home buyers who purchased recently with low deposits.
“It seems likely that property values have further to fall over the coming months, so additional weakening of the resale performance data is on the cards for the next two quarters and into 2023,” he said.
“However, with unemployment still low and long-term growth expected to return at some stage, genuine ‘forced sales’ remain few and far between with borrowers willing and able to ride out the downturn.
“For this reason, it’s likely most resellers will continue to see gross profits in the coming quarters, especially if they’ve owned the property for an extended period of time.
“It’s just these profits may be a bit less common and smaller than we’ve grown used to.”