Profit taking from houses dropping

Although their share of resales dropped in the September quarter to 97.1% from 97.6% in the June quarter, the median sale was at a gross profit of $$337,750, compared to $324,000 for owner-occupiers, CoreLogic’s latest Pain & Gain report shows.

Across the country the number of all property types selling for a profit has fallen to its lowest level since the end of 2020, while the median profit has dropped $109,000 for houses and $158,000 for apartments.

In the three months to September 96.8% of property resales made a gross profit, down from the peak of 99.3% at the end of last year and the lowest level since the fourth quarter of 2020 when they were at 96.3%.

While the drop may be significant, CoreLogic data show through 2000 and 2001, it was common for the profit share to be as low as 75%, and in the post-GFC period, that figure was often as low as 80%. The latest figures are still well above those marks.

In dollar terms, the median resale profit for houses dropped to $331,000 from the peak of $440,000 at the end of last year.

Median Hold Period

The median hold period for properties resold for a gross profit has held relatively stable in the range of seven to eight years since 2017, with this quarter no exception.

Properties resold for a gross profit had been owned for a median of 7.7 years, close to the second quarter’s figure of 7.6 years. For loss-making resales, the median hold period was just 1.3 years, also basically unchanged from the second quarter’s figure, and on a par with a long trough over 2005-07.

“Anybody who has held for the typical seven to eight year period should still be sitting on large capital gains,” says Kelvin Davidson, CoreLogic’s chief property economist .

“Putting aside small quarterly shifts, the hold period for profit-making resales has held steady in a long run context, given that in mid-2001 the median hold period for profit was only about 6.5 years, and in 2005-06 it was as low as four years.”

Property Types

Profit-making resales for houses fell below 97.5%, the lowest proportion since the third quarter of 2020 but still well above the pre-COVID average. However profit-making resales for apartments are steadily declining, from a peak of about 94-95% in 2021 to be 82.4%, the lowest since the first quarter of 2015.

The median resale profit for houses was $330,000, and apartments achieved $158,000. In terms of losses, houses saw a median of -$40,000 and apartments -$43,000 (although this figure only covers a relatively small number of apartment transactions).

The bulk of the loss-making apartment resales were in Auckland, which is unsurprising given Auckland has the most apartment stock. Wellington also had a handful of loss-making apartment resales.

“Again, however, context is important,” says Davidson. “Even though the share of apartment resales being made below the original purchase price has risen, it’s not time to panic. After all, at 17.6%, the figure is still reasonably low by past standards.”

Main Centres

Auckland, Wellington, and Dunedin are showing a bit of extra weakness, versus slightly steadier, albeit softening, conditions in Hamilton, Tauranga and Christchurch.

Auckland’s share of profit-making resales declined by 2.6% quarter-on-quarter to 94.2%, the lowest figure since the last quarter of 2019. Dunedin’s share also dropped by 2.1% to 96.9%.

However, most resellers are still getting a price well above what they originally paid – ranging from a gross profit of more than $400,000 in Tauranga, Auckland, and Wellington, down to about $368,000 in Hamilton, and $300,000 or less in Dunedin and Christchurch.

Outlook

As listings and interest rates have risen, mortgage credit has tightened, and property values themselves have dropped, the resale performance across the market has started to weaken more materially, says Davidson.

“While the impact of a downturn will never be immediate on resale performance, simply because of the critical role hold periods play, the impact is still there with gains becoming less common, and certainly the dollar value of those gains falling quite quickly.

“In past down-swings, we have seen the profit-making share of resales dip as low as 75-80%. While it’s uncertain if we’ll get there again, historical data suggests that profit-making resales could fall as low as 90% over the coming quarters, potentially even lower, particularly as existing borrowers reprice from previous low rates onto a much higher repayment schedule potentially forcing faster sales,” he says.