Nine out of 10 properties are selling for a profit amid a turnaround in wider housing market conditions, CoreLogic NZ says.
According to the latest CoreLogic NZ Pain & Gain report, the proportion of properties being resold at a profit in the third quarter of 2023 was 92.6% – a slight fall from the 92.9% gain seen in Q2 this year, and well below Q4 2021’s peak profitability of 99.3%.
Despite the drop, the portion of profitable property resales indicate the wider housing market has nearly stabilised in the third quarter, after falling by almost seven percentage points in less than two years.
While the median profit of $285,000 in Q3 2023 has also slimmed down from Q4 2021's $440,000, it 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 across all 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.
Davidson said properties resold for a gross profit in the third quarter of this year had been owned for a median of 8.1 years – in line with the average of the past year.
Meanwhile, more than half of the properties which resold at a loss in Q3 2023 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," he said.
Of the loss-making resales in the three months to September 2023, the median hold period was just 2 years, largely unchanged from the previous quarter.
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."
He said a change in a homeowner’s financial situation, coupled with the rising interest rates, may have played a role in the shorter hold period "to some degree and an increased risk of a resale loss".
Resale turnaround
The emerging turnaround for property values has seen resale performance strengthen in some parts of the country.
Christchurch was the strongest among the main centres, where the share of property resales made for a loss reduced from 5.3% to 4.7%.
Loss-making resales in Hamilton also dropped from 8.5% of resales at a gross loss in Q2 2023 to 6.9% in Q3.
The areas which saw a rise in resales at a loss include Tauranga, which increased from 4.8% in Q2 2023 to 7.1% in Q3 2023; Wellington, which rose from 6.1% in Q2 to 7.6% in Q3; and Dunedin, which jumped from 6.8% in Q2 to 7.7% in Q3.
The ’pain’ percentage was most keenly felt in Auckland at 11.3% in Q3 – a slight increase from the 11.2% result in Q2.
The share of property resales made for a gross loss increased in Q3 2023 for both owner-occupiers and investors.
For owner-occupiers, 7% of resales across the country made a gross loss – an increase from 6.7% in Q2 2023.
For investors, 8.6% made a loss in Q3 – up from 8% 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," Davidson said.
The median resale gain for investors in Q3 2023 was $285,000 – slightly above the owner-occupier figure of $280,000. For losses, the median for investors was around $48,000 – again slightly above the owner-occupier figure of $45,000.
Davidson said despite the more dismal figures, there are no major signs owner-occupiers or investors are hitting the panic button.
"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."
'The worst may have already passed'
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 it may not necessarily happen straight away, he said.
"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.”
He added that "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.”
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