More property sellers face losses amidst weak market
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By Kelvin Davidson, CoreLogic NZ Chief Property Economist
New Zealand's property market remains subdued, with a rising share of sellers incurring losses amid higher listing volumes, falling house prices, and persistent economic challenges.
CoreLogic NZ's latest Pain & Gain report for Q3 2024 shows the proportion of properties being resold for more than the original purchase price was 90.2%, down from 91.8% in Q2 2024.
Conversely, the proportion of loss-making resales climbed to 9.8% in the September quarter, the highest level since Q2 2015, up from 8.2% in the previous quarter.
CoreLogic NZ Chief Property Economist Kelvin Davidson said that while most sellers are still making a profit, the balance has shifted in favour of buyers, giving them more leverage in price negotiations.
"These figures reflect a changing market, with buyers now holding the upper hand as challenges persist," Mr Davidson said.
"This follows a prolonged decline since the extended peak in 2021, when 99% of resales were profitable. Given the recent weakness in the wider housing market, it's not surprising that both the frequency of profitable resales and the size of the gains have decreased."
The median resale profit fell to $269,000 in Q3, down sharply from $305,000 in the previous quarter. Mr Davidson said this is a significant drop from the highs seen during the post-COVID housing boom when the median profit peaked at $440,000 in late 2021.
Hold periods highlight market volatility
Hold periods remain a critical factor in determining profitability with properties sold for a gain in Q3 2024 having a median hold period of 8.5 years, compared to those resold at a loss, which were typically held for 2.9 years.
Mr Davidson said the longer hold periods for profitable sales reflect the cautious approach many sellers have adopted in response to recent market softness.
"Hold period is key. Even with the softer market conditions of the past 18 months, property owners who have held their properties for eight to nine years are still likely to make a gross profit," he said.
"While median resale profits are still significant, especially for long-term owners, most owner-occupiers won't see a cash windfall. Instead, the new equity will typically be rolled into their next purchase—unless they're downsizing or moving to a less expensive area."
Investor pressure mounts as losses rise
The proportion of investors selling for a loss climbed to 11.1% in Q3, up from 8.5% in Q2 and the highest level in a decade. In comparison, owner-occupier loss-making resales rose to 8.8%, highlighting a slightly widening gap between the two groups.
"Investors appear to be feeling the pinch a little more acutely, likely driven by cashflow challenges and possibly a reduced appetite to sustain loss-making properties," Mr Davidson said.
"While we're not seeing a widespread exit from the market, the rise in investor losses suggests cash flow may be an issue for multiple property owners and some may be opting to cut their losses rather than continue to subsidise underperforming assets, particularly with still elevated mortgage rates."
Apartment sector struggles continue
The performance gap between apartments and standalone houses remained high in Q3, with 35% of apartment resales incurring a loss, compared to 8.9% for houses.
"Investors typically favour apartments for their yield potential, but these properties can also be more susceptible to market fluctuations," he said.
"While losses are more common in apartment resales, there's no sign of fire-sale pricing. Instead, many investors appear to be reassessing their portfolios and, in some cases, choosing to absorb losses to focus on better-performing assets."
Regional disparities persist
Resale figures across the main centres presented a mixed picture in Q3 2024, with some cities experiencing a rising share of losses, while others saw fewer resales made at a loss or even a slight decline.
Auckland recorded the highest proportion of loss-making sales among the main centres, increasing to 16.1%, up from 12.9% in Q2 2024. Wellington also saw a significant rise in loss-making sales, reaching 9.9%.
Hamilton's property resale performance also remained relatively soft in Q3 at 10.6% however the figure was a slight improvement on Q2's result of 11.1%.
Queenstown continued to outperform, with only 2.5% of resales made at a loss, and also a substantial median profit at $464,500.
Recovery outlook hinges on interest rates
While the current conditions remained challenging for sellers, falling mortgage rates and a stabilising economy could support a shift back in favour of homeowners in 2025, Mr Davidson said.
CoreLogic's Home Value Index showed a decline of -0.5% in October, marking the eighth consecutive monthly drop. Property values have now fallen by -5.1% since February, leaving current values at $805,984.
Despite a slower pace of decline in recent months, a sharp recovery remains unlikely, given the ongoing challenges of housing affordability, high stock levels, and a weak labour market continuing to have an impact, Mr Davidson said.
"A modest upturn in sales and values is possible over the next 12 to 18 months as lower mortgage rates boost confidence," he said.
"However, any growth in resale profits is expected to be limited until broader economic conditions and buyer confidence significantly improve."
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Source: CoreLogic