House prices: Property resale losses at seven-year high - CoreLogic

Property resale losses are at a seven-year high as the impact of rising interest rates hits Kiwis.

The latest CoreLogic NZ Pain and Gain report showed that 6.1 percent of property resold in the first three months of 2023 went for a price less than the previous transaction. This figure is up from 4 percent in the final three months of last year and is the highest since Q1 in 2016.

While the median profit on the 93.9 percent of resales that sold for a gain remains high at $305,000, it too has fallen from the peak of $440,000 in Q4 2021. The median resale loss was -$60,000, up from -$45,000 at the end of last year.

CoreLogic NZ's chief property economist Kelvin Davidson said while the number of loss-making resales was still low, the softer trend for resale performance is evident across owner classification, property type and geography.

"It's important to remember hold period plays a key role in the size of any 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," Davidson said.

"Owner-occupiers generally aren't making a cash windfall either, as the equity is generally recycled to make the next property purchase."

Hold period

Properties resold for a gross profit in the three months to March 2023 had been owned for a median of 8.3 years, unchanged from the previous quarter and consistent with the longer-term average, the report said.

For loss-making resales the hold period was 1.8 years, up slightly from 1.6 years in Q4 2022, but still low by historic standards. Davidson said this was particularly striking.

"This means there was a tendency for recent loss-making property resales to have been originally purchased around the first half of 2021, when the market was very strong and looked different than it does now," he said.

"Presumably, many of these resellers had intended to hold for longer, but perhaps had to sell due to changed personal or financial circumstances, such as the impact of rising interest rates."

The Reserve Bank hiked the official cash rate (OCR) in early April by 50 basis points to 5.25 percent, which are highs not seen since the 2008 global financial crisis.

While many thought April's hike could've been the last, ASB economists are now picking a rise of 50 basis points to the OCR later on Wednesday, and possibly a further 25bp hike in July - peaking at about 6 percent. 

Where the pain was felt

The current trends in home values around the main centres are reflected in the pain and gain figures, CoreLogic said. 

Christchurch, where property values have been the most resilient, is showing the lowest portion of loss-making resales at 2.7 percent (up from 1.7 percent last quarter), while the most pain is currently being felt in Auckland where 13.2 percent of resales were made below the previous purchase price. That was up from 6.9 percent in Q4 and represented the largest quarter-on-quarter change of the main centres.

Hamilton had the next highest proportion of resale losses at 8.1 percent, followed by Wellington (6.3 percent), Dunedin (5.3 percent) and Tauranga (5.0 percent).

Pain and gain by property type

CoreLogic said the turnaround for the pain and gain data is apparent in the apartment market. More than 28 percent of resales in Q1 2023 made a gross loss, the highest since Q4 2012 (29.5 percent) and up from about 5 percent in mid-2021.

Davidson wasn't too alarmed at the trend given the proportion of apartment loss-making resales has been much higher in the past and the number of sales remained relatively low, at just 78 deals over the quarter.

It is still relatively uncommon for houses to make a gross loss at resale, but Davidson said this has also turned a corner.

"From only half a percent of house resales being made for a gross loss in Q1 2022, that figure has now risen to 5.1 percent. That's the highest since mid-2016, meaning relatively fewer house resellers are making a gross profit than has been the case for around seven years."

In terms of the scale of profits and losses, the median gain for houses nationally was $302,000 in Q1 2023, while the median loss was $50,000. For apartments, the profit and loss was $147,500 and $67,500 respectively.

Profit and loss by owner type

Both owner-occupiers and investors saw an increase in loss-making resales in Q1 2023, CoreLogic found. 

Owner-occupiers saw 5.8 percent of resales make a gross loss, up from 3.4 percent in Q4, while 7.4 percent of investors made a gross loss, up from 4.7 percent in the previous quarter.

Davidson said despite these figures being the highest levels since 2015-16, there weren't any major signs of owner-occupiers or investors hitting the panic button yet.

"Longer-term landlords will typically have smaller mortgages and will have seen rents increase over time too. This gives their existing portfolio a degree of insulation, although it's worth noting that their buying activity has been curtailed lately too," he said. 

"For owner-occupiers, continued high levels of employment are a buffer, meaning they're not being forced to sell either. However the growing uncertainty around the cash rate outlook could impact these figures."

Pain and Gain outlook

Looking ahead, Davidson said with house prices likely to remain lower than previous peaks for a few years yet, there may well be further weakness for the performance of resales themselves too - with more pain and less gain to come.

"The growing uncertainty around the cash rate ceiling could also impact these figures in the months ahead if the RBNZ hikes rates again," he said.

"However, with few signs to date of widespread mortgage repayment problems or 'stressed sales', a return to the 2000-01 and post-GFC pain and gain results seems unlikely."