The recovery in New Zealand’s housing market has led to profitable resales rising for the first time in two years.
CoreLogic’s Q4 2023 Pain & Gain Report found that the proportion of properties being resold for more than the original purchase price, rose to 93.3 per cent in the fourth quarter of last year, up from 92.4 per cent in the previous quarter.
That marks the first rise in profitable resales since the fourth quarter of 2021, when it hit a peak of 99.3 per cent.
The median resale profit also rose to $305,000 while median losses fell to just $45,000.
CoreLogic’s Chief Property Economist Kelvin Davidson said the figures suggest the worst of the housing downturn is likely over.
“More than nine in 10 properties are selling for a profit, although it must be noted this is still quite low compared to the longer-term average and reflective of the fact that national values are still about 11 per cent below their peak,” Mr Davidson said.
“However, the higher portion of profitable resales we’re starting to see is consistent with the rise in property values themselves since September’s trough, alongside wider market forces such as the peak for mortgage rates, high net migration, a resilient labour market and easing credit conditions.”
Across the main centres, Auckland saw 90 per cent of resales make a gross profit, up from 88.5 per cent in Q3, breaking a run of weakening results that stretched back to late 2021.
Wellington also saw a rise in profitable resales, from 91.4 per cent in Q3 to 93.8 per cent in Q4, likewise in Christchurch where profitable resales lifted from 95.9 per cent to 96.5 per cent quarter-on-quarter.
However, Hamilton, Tauranga and Dunedin all saw their share of profitable resales decline a touch, reflecting the ‘patchiness’ in the market overall.
Properties resold for a profit had been owned for a median of 8.5 years, up from 8.3 years, which was much higher than typical figures of around seven years through 2020 and 2021.
In contrast, the hold period for loss-making resales was 2.3 years, on par with recent quarters.
“Hold periods to achieve a gross profit do seem to have started to lengthen in the past few quarters, though this may have been influenced by the wider market downturn incentivising prospective vendors to hold longer in order to achieve a profit,” Mr Davidson said.
“When you compare the hold period for resale losses versus resale gains, clearly a longer hold period gives time for capital gains to accumulate, whereas shorter hold periods tend to have greater risk of losses.
“Indeed, counting back about two years from Q4 2023 takes you to the peak of the market, so any properties bought in late 2021 but sold in late 2023 faced very different market conditions in those two periods, and a greater chance of a gross loss.
“Presumably, many of these resellers had intended to hold for longer, but perhaps had their hand forced due to various personal circumstances.”
Amongst the main centres, the longest hold period for resale gains was 9.6 years in Wellington, closely followed by 9.4 in Dunedin, and nine apiece in Auckland and Christchurch.
Tauranga was at 8.6 years, and Hamilton a little further back at 7.7 years.
Houses continue to outperform apartments and flats for resale performance, with the proportion of profitable house resales rising to 93.9 per cent, while 74.2 per cent of apartments made a gross profit.
“The resale performance of houses has evidently started to turn around in the past few months, and as the wider property market slowly recovers, it seems likely that apartment reselling activity will follow suit,” Mr Davidson said.
“Although around 26 per cent of resales at a loss is a concerning figure for apartment resellers, this segment has been much weaker in past cycles,” he said.
Investors saw an increase in profitable resales to 92.9 per cent, up from around 91 per cent at the start of 2023.
Meanwhile, 92.8 per cent of owner-occupiers made a profit, down from 93.1 per cent in Q3 and the highest loss-making proportion since Q4 2015.
“This was an interesting contrast for owner-occupiers and investors in the final quarter of 2023,” Mr Davidson said.
“While the differences in profitable resales between investor and owner-occupiers are pretty small, one reason for the shift could be a longer hold period for investors who sold in Q4.
“It’s also possible that in a slightly soft market, some owner-occupiers have been willing to take the plunge and make a sale for a price less than what they paid, if they can see an opportunity to upgrade for less on their next property.”