Georgina Bond
Making money when selling your house is becoming less of a sure thing, with the share of New Zealand homes selling for a profit hitting its lowest level in almost 14 years.
And when it comes to making a capital gain, time in the market makes a big difference. Sellers who are making a profit in the current market have typically owned their property for 10.4 years.
That’s one of the key findings in Cotality NZ’s latest Pain and Gain report for the three months to June. During that time, 86.9% of properties changed hands for a profit, down from 88.1% in the first three months of the year and the lowest proportion since late 2012.
It’s more bleak news in a housing market that’s struggling.
Nationally, values are still about 18% below their early 2022 peak, while buyers are dealing with economic and political uncertainty, higher home ownership costs and plenty of properties to choose from.
The pain is particularly acute in Auckland, where more than one in five properties resold during the quarter at a loss, while in Wellington, 18.4% of resales lost money.
Apartments are particularly tough to move, let alone sell for a capital gain, with 45.2% selling for less than their owners paid for them. That’s the worst result since 2010.
Cotality NZ chief property economist Kelvin Davidson says the figures reflect the long property downturn, with four years of falls and stagnation.
“While the share of profitable resales has fallen from more than 99% at the peak to 86.9% today, it’s been a gradual adjustment rather than the sharp deterioration we saw during the global financial crisis,” Davidson says.
The fix?
Asked what it would take to kick-start the housing market, ANZ Bank chief economist Sharon Zollner (pictured) said lower unemployment would help, particularly by giving first-home buyers more confidence.
Speaking at a breakfast hosted by The Law Association on Wednesday, Zollner said there was, however, a bigger shift going on: the conditions allowing house prices to consistently grow faster than incomes over previous decades are unlikely to return.
“The days of housing markets outdoing wage growth, year-after-year, are behind us,” she said.
For about 30 years, falling global interest rates steadily increased the amount of debt households could afford, helping push asset prices higher.
But interest rates eventually reached zero and even turned negative in some countries. That meant the long-running boost to the amount people could borrow had reached its limit.
“In a housing upswing, how much people can borrow determines how high prices can go,” Zollner says.
“We’re just not going to have that steady increase in borrowing capacity.”
While there will still be housing booms and busts, over the longer term house prices are likely to be more closely tied to income growth.
Higher council rates, insurance and other costs of owning a home are also changing the equation for buyers and making renting relatively more attractive.
Time in the market
Cotality’s figures reveal just how much the downturn depends on when people bought their properties.
Properties sold for a profit in the June quarter had been owned for a median 10.4 years, the longest period in Cotality’s series dating back to the mid-1990s.
Properties sold at a loss had typically been owned for just 4.3 years. That puts the typical purchase around late 2021 or early 2022, when house prices were near their peak.
“Some owners may be waiting longer for values to recover before selling, while elevated listings and subdued sales activity mean it can simply take longer to achieve a sale,” Davidson says.
The median gain on profitable sales was $280,000, down from $292,000 in the March quarter and well below the late-2021 peak of $440,000. The median loss grew from $55,000 to $60,000.
Auckland and Wellington recorded the biggest median losses of $85,000.
But people who had owned their homes for longer were still sitting on decent gains. The median profit was $368,000 in Auckland and $311,750 in Wellington.
Davidson says things are unlikely to improve much in the short term.
“Looking ahead, economic uncertainty remains high, listings are elevated and buyers generally have plenty of choice. Until those conditions change materially, it’s difficult to see resale performance improving significantly in the near term.”
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