Property resales may have reached a "turning point" with some properties selling at a loss for the first time in months. Photo / Getty Images
Property resales may have reached a "turning point" with some properties selling below their original purchase price for the first time in months.
But property experts say it is nothing for homeowners to panic about.
CoreLogic NZ's latest Pain & Gain report for resales between April 1 and June 30 revealed Tauranga had gone from 100 per cent of properties selling above the original purchase price to 1.1 per cent of resales incurring a gross loss.
The report showed most resellers were still getting a price well above what they originally paid with a gross profit of $520,785 per property in Tauranga.
But the frequency of those resale gains had fallen slightly and the size of losses had generally risen, with Tauranga's median loss exceeding $50,000.
Rotorua held steady at 1.5 per cent of property resales making a median loss of $17,500 in Q2 - 98.5 per cent made a median resale gain of $380,000.
CoreLogic NZ chief property economist Kelvin Davidson said Tauranga had three loss-making sales in Q2 and Rotorua had two.
"Like most of the rest of the country, these two areas have had big upswings in property, but are now feeling the strains of higher mortgage rates and tighter credit conditions.
"Property values have fallen – just dampening the resale performance stats a little."
Davidson said the last time Tauranga recorded resale losses was in the last quarter of 2021, with a median loss of $31,000.
But while resale figures had weakened, Davidson said most property resellers were still making a significant gross profit.
"We must put these figures into context and that is they are still historically strong, which reflects the fact that homeowners tend to hold property for seven or eight years on average, which locks in gains even as property values weaken over the short-term.
"Nevertheless, the turning point has arrived and for owner-occupiers, this isn't typically a cash windfall unless they are downsizing or moving into a cheaper location."
Properties in Tauranga that resold for a gross profit in Q2 had been owned for a median of 7.6 years. Loss-making resales in the quarter were held for a median period of 1.3 years.
Davidson said given the relatively short period for loss-making resales in the second quarter of 2022 it would not have helped that the market had started to fall in the past six months.
"Equally, however, given continued low unemployment, it is unlikely that many of these were 'stressed' sales and are probably associated with an unexpected change in personal circumstances."
For owner-occupiers in Tauranga, 100 per cent of resales in the second quarter achieved a gross profit, while the share of investor property resales made for a gross profit was 97.6 per cent.
Davidson said it was worth keeping an eye on investors in Tauranga though as 3.8 per cent of investor resales in Q2 were made below the original purchase price.
Although some investors were reassessing their sums as capital gains fade and mortgage rates rise the latest figures reaffirmed there were no "fire sales" or a rush for the exits, he said.
He said one area of concern was first-home buyers who bought during the final quarter of 2021 when prices were at their peak.
Assuming a 20 per cent deposit was used and no principal had been paid back, the softening in values could have plunged first-home buyers into negative equity, with mortgages larger than what their homes were now worth, he said.
"It seems likely that property values have further to fall over the coming months, so additional weakening of the resale performance data is on the cards for the next two quarters and into 2023."
However, Davidson said as unemployment was still low and long-term growth was expected to return at some stage, genuine "forced sales" remained few and far between with borrowers willing and able to ride out the downturn.
"For this reason, it is likely most resellers will continue to see gross profits in the coming quarters, especially if they have owned the property for an extended period of time.
"It is just these profits may be a bit less common and smaller than we have grown used to."
OneRoof property commentator Ashley Church said the 1.1 per cent of properties selling for below the original purchase prices was more of a "margin of error" than anything else.
"It is entirely reflective of the last six months of the market."
But Church said there was a "hesitantly positive" sense of confidence in the market as less restrictive changes to the Credit Contracts and Consumer Finance Act were now making an impact, interest rates were falling slightly, and more migrants granted residency were looking at buying houses in New Zealand.
In his OneRoof column last month, Church said the question of whether to buy now or wait was mostly posed at times when the market was flat or falling.
Church said waiting until prices fell further or when the market "bottomed out" to buy property was almost always a "fool's errand" and his advice was the same: If you're in a position to buy now – buy now.
And for people who already own property, he said a slight drop in resale values was nothing to panic about and his advice was: "Don't sell if you don't have to."
Chief executive of the Realty Group Ltd, which operates Eves and Bayleys, Heath Young said a turn in market conditions, softening prices, and a lower number of properties selling had caused a shift in resale performance.
But he said it was not a large cause for concern given only 1.1 per cent of property sales were in a resale loss position in the last quarter.
Young said a market shift from sellers to buyers and a drop in property values meant properties were taking a little longer to see with more conditions able to be introduced by the buyers.
"If anything, buyers now have more choice and more time and the vendor that is willing to recognise the changes in the market the best will likely be the vendor that successfully sells."
First-home buyers who bought during the last quarter of 2021 when prices were at their peak may experience "theoretical losses" compared to current values, he said.
"Most first-home buyers hold property for an average of five-to-seven years so any real loss or gain would depend on when they sold."
If prices continued to soften, however, there would be fewer resale gains, he said.
"We are not seeing any signs of stressed or mortgagee sales coming onto the market."
Independent economist Tony Alexander said as prices continued to fall people thinking about buying were holding back.
"I would expect the length of holding periods would tend to increase."
PAIN:
Median gross loss: $54,000
Gross loss on resale: $200,000
GAIN:
Median gross profit: $520,785
Gross profit on resale: $173,042,640
PAIN:
Median gross loss: $17,500
Gross loss on resale: $35,000
GAIN:
Median gross profit: $380,000
Gross profit on resale: $52,962,350
Source: CoreLogic NZ
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