News & Research

Turning point for profitable resales as gains start to fall

The resale performance of residential real estate has reached a turning point, CoreLogic NZ’s latest Pain & Gain report shows, with Q2 figures revealing that the post-COVID run has lost steam. In the three months to June 2022 (Q2 2022), 98.1% of property resales made a gross profit (sale price above the original purchase price), or gain, down from 99.1% in Q1 and 99.3% in Q4 2021.

CoreLogic NZ Chief Property Economist Kelvin Davidson said the results are not too much of a surprise following interest rate increases and a surge in new listings, which has shifted the balance of power from sellers to buyers – and seen property values themselves decline.

In dollar terms, 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.

Mr Davidson acknowledged while resale figures had weakened, they remained relatively high with most property resellers still making a significant gross 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,” he 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 the second quarter of 2022 is evident across most parts of the country, as well as property type (house vs apartment) or owner type (owner occupiers vs investors).

Median Hold Period

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 observed.

“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.”

Main Centres

Extra weakness is the emerging trend among the main centres, most notably Auckland, Wellington, and Hamilton, with slightly steadier, albeit softening, conditions elsewhere.

Auckland saw 3.6% of property resales record a gross loss, up from 1.8% in Q1 2022, and the highest figure since Q3 2020 (4.5%). Hamilton also saw a relatively sharp rise in the share of resales made for a gross loss in Q2, from 0.2% in Q1 to 2.6% – the highest since Q2 2020.

Wellington’s loss-making resales rose from 1% in Q1 2022 to 2.2% in Q2, the weakest since Q4 2016 (2.3%). Mr Davidson described Wellington’s turning point as ‘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 has gone from having 100% of profit making resales in Q1 to 1.1% of resales incurring a gross loss in Q2 2022. Dunedin’s volume of homes sold at a loss increased from 0.2% in Q1 to 1% in Q2, while Christchurch edged up slightly from 0.7% to 0.9%.

“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.”

Property Types

Profit-making resales for houses fell below 99% for the first time in 18 months, with 98.5% of houses resold for a gross profit in Q2 2022.

Apartment gross profit resales have fallen for three consecutive quarters from 94.6% in Q3 2021 to 87.4% in Q2, meaning 12.6% 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 (although it must be noted that this figure only covers a relatively small number of apartment transactions).

“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.

Owner type

For owner occupiers, 99.4% of resales in the first quarter of the year achieved a gross profit – but this figure dropped slightly to 98.6% in the three months to June. It is the softest figure since Q3 2020, when it was 97.3%.

Meanwhile, the share of investor property resales made for a gross profit in Q2 also dropped, from 99.1% in Q1 to 97.6%. That was also the softest figure in nearly two years when it was 97%.

Pain & Gain Outlook

Although some investors may have been reassessing their sums a little more lately – as capital gains fade and mortgage rates rise – Mr Davidson said the latest quarterly pain and gain figures reaffirm other evidence that there has been no ‘fire sales’ or a rush for the exits.

One area of concern will be first home buyers who purchased during the final quarter of 2021, when prices were at their peak. Assuming a 20% deposit was used and no principal has been paid back, the softening in values could have plunged more than 500 first home buyers into negative equity, with mortgages larger than what their homes are now worth.

“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.”

Download the Q2 2022 Pain & Gain Report


CoreLogic New Zealand

CoreLogic New Zealand

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