Report reveals a rise in property sales making gross losses compared to Q4 2022
Continued declines in home values in New Zealand have resulted in a significant increase in the number of properties being resold at a loss.
According to the latest CoreLogic NZ Pain & Gain report, 6.1% of property resales in the first quarter of 2023 were sold for a price lower than the previous transaction, marking the highest proportion of resale losses since 2016.
This figure has risen from 4% in the final quarter of 2022, indicating a concerning trend.
While the median profit on the majority of resales, which sold for a gain, remains relatively high at $305,000, it has fallen from its peak of $440,000 in the fourth quarter of 2021.
Conversely, the median resale loss has increased to -$60,000, up from -$45,000 at the end of last year.
This decline in property values is evident across owner classification, property type, and geography, according to Kelvin Davidson (pictured), chief property economist at CoreLogic NZ.
Davidson emphasized the role of the hold period in determining resale profit or loss.
"Even in a down market, owners who have held property for several years will still tend to see large gains at resale time," he said.
He said that owner-occupiers typically don't make a cash windfall, as the equity is typically reinvested in the next property purchase.
The report also highlighted the hold period differences between profitable and loss-making resales. Properties resold for a gross profit in the first quarter of 2023 had been owned for a median of 8.3 years, while loss-making resales had a significantly shorter hold period of 1.8 years.
This indicates that recent loss-making resales were originally purchased around the first half of 2021 when the market was stronger.
The pain of resale losses is felt differently across New Zealand's main centers. Christchurch, which has shown the most resilience in property values, experienced the lowest portion of loss-making resales at 2.7%, while Auckland faced the most significant challenges, with 13.2% of resales sold below the previous purchase price. Hamilton, Wellington, Dunedin, and Tauranga also reported substantial proportions of resale losses.
The apartment market has been particularly affected, with more than 28% of resales in the first quarter of 2023 resulting in a gross loss.
This is the highest figure since the fourth quarter of 2012, representing a significant increase from around 5% in mid-2021. However, Davidson reassured that the number of apartment sales remains relatively low.
In terms of owner type, both owner-occupiers and investors saw an increase in loss-making resales in the first quarter of 2023.
Owner-occupiers experienced a rise from 3.4% to 5.8% in resales sold at a loss, while investors saw an increase from 4.7% to 7.4%.
Despite these figures reaching the highest levels since 2015-2016, Davidson said that there are no major signs of panic among owners yet.
Looking ahead, Davidson cautioned that the performance of resales may weaken further due to lower house prices expected to persist for the next few years.
He also mentioned the potential impact of the uncertain cash rate outlook and further interest rate hikes by the Reserve Bank of New Zealand.
However, he believes a return to the levels seen in the early 2000s or post-global financial crisis is unlikely, as there are currently no widespread mortgage repayment problems or distressed sales.
