Most homeowners continue to make significant profits when they sell their homes, despite the fact that the resale market is showing further signs of weakness.
CoreLogic’s pains and gains survey indicates that 98.1% of properties resold in the three months ending June (Q2 2022) achieved a gross profit or gain over the previous purchase price.
This is down one point from the March quarter.
In dollars, median gross resale profit fell to $370,000 from $418,000 in the March quarter and a record high of $440,000 at the end of 2021.
The median gross loss increased slightly to $40,000.
Kelvin Davidson, chief property economist at CoreLogic NZ, said the results weren’t too surprising, given the effect of recent interest rate hikes and surging new listings on prices. .
“We have to put these numbers into context and that is that they are still historically strong, reflecting the fact that owners tend to hold a property for seven or eight years on average, which secures gains even if the property values weaken in the short term,” Davidson said.
“Nevertheless, the turning point has come and for owner occupiers it’s not usually a bargain unless they downsize or move to a less expensive location.”
Davidson said sellers often need all of the profits, then some, to move into their next property.
The survey indicated that properties sold for a profit had been held for a median of 7.6 years.
Meanwhile, loss resales were for properties held for a median of 1.3 years, down from 2.1 years in the March quarter.
Those sales were unlikely to be due to the homeowner being “stressed out” given the current strength in the job market, Davidson said.
The losses were most likely associated with a sudden change in personal circumstances, he said.
The median gross profit for a home was $366,000, while the median gross loss, which occurred in 1.5% of sales, was $25,000.
Apartments sold for less profit ($196,750) and had significantly more instances of selling at a loss (12.6%), reflecting the volatility associated with the property class.
Across the country, further weakness was an emerging trend in major centers including Auckland, Wellington and Hamilton, which saw the proportion of resale losses rise to 3.6%, 2.6% and 2.2% respectively.
“Again, these are low numbers, but they signal a turning point for previously very strong markets,” Davidson said.
Looking ahead, a concern would be first-time home buyers who bought late in 2021, when prices were at their peak, Davidson said.
“Assuming a 20% down payment was used and no principal was repaid, the decline in values could have pushed more than 500 first-time home buyers into negative equity, with higher mortgages to the current value of their homes.”
Further weakening in resale performance data is likely to continue into 2023 as house prices trend lower, Davidson said.
“However, with unemployment still low and long-term growth expected to return at some point, real forced sales remain rare and borrowers willing and able to ride out the recession.”