CoreLogic's preliminary figures for April show how sharply house prices have fallen, and one vendor has felt the pain worse than anyone
Up to 2.5 percent of vendors are now losing money when they sell their homes - and, like the sharemarket, it's all about time in, rather than timing.
As a supplement to its Q1 Pain & Gain report, CoreLogic has run a preliminary analysis of April sales for Newsroom readers, showing the numbers losing money in property have more than doubled as the market enters the second quarter of the year.
That's the highest rate of losses for two years, though still low compared with the longer term. "At the very least, it’s another indicator that the market has passed its peak," says CoreLogic chief property economist Kelvin Davidson.
Those residential properties being resold for a loss have been held for a median period of 1.6 years. "The expectation would be that many of these types of ‘short’ sales will unfortunately reflect changed circumstances such as divorce," Davidson says.
Henderson Valley house sells for $75k below purchase price
Nationwide sales figures show the worst loss last month was suffered by a vendor in Henderson Valley, in west Auckland, who in November 2020 purchased a very small three-bedroom cottage on 1588 square metres of native forested land sloping down towards Stoney Stream, for $1.1 million.
Just 18 months later on April 22, she sold it for $1.025m - that's $75,000 less than she paid, and on paper it's also a $95,000 discount on the June 2021 rateable value of $1.12m. And that doesn't allow for the money she spent renovating it, and the real estate agent's commission when she sold it.
Worse still for her morale, that's half a million dollars below the (somewhat optimistic) $1.54m Homes.co.nz estimate of what it would have sold for just two months earlier, though that says more about the unreliability of such pricing sites.
As Davidson suggests, there are changed circumstances behind this short-term buy-and-sell loss, not so much for the unfortunate vendor as for the property.
Ann Hutton from LJ Hooker marketed the property, and said the drop in price was essentially an act of God.
"To understand that, there was a once-in-a-100-year event in Henderson Valley back in 2021," she told Newsroom. "We had this huge flood, it took out the Pony Club and went up to Kumeu – total devastation.
"So that house, from when the lady bought it, had been totally destroyed. It was yellow stickered by the council. That has been completely rebuilt – we took it back to the market because the owner didn't sell it for that reason. She was lucky she actually come into some money and had bought something else.
"So basically, the house was completely renewed, and looked absolutely stunning. But because of the event, I think that probably at the end of the day affected the price that she was likely to get. And she had purchased and needed to move on. So it's really what justified that drop in price."
Hutton says the house is a "beautiful home in a lovely location". She had listed it as a tropical oasis with a spacious open-plan dining and kitchen area and modern appliances, including an induction cooktop and double oven. The lounge features a fireplace, combined with a heat pump and double-glazed windows. Two rooms open on to covered decks.
"Stepping out on to the northern side of the house is like stepping into a retreat, whether soaking up the sun on the outdoor couch, relaxing with a book on the hammock, entertaining large groups in the magical setting, or playing with pets or kids on the lush lawns," the listing said.
But all of that renovation spend was worth little, thanks to the flood. And Hutton acknowledges the market decline is also impacting on sales prices. "I think so. If you'd been selling October, November last year, what you may have achieved then and what you want to achieve now, is probably completely different."
"I think it's just an adjustment. If people need to sell or want to sell and you know, they have personal needs to sell, whatever they may be, then it's really just a case of, you know, not expecting to see what you were likely to see in November last year and meet the current market."
The CoreLogic data shows that overall, most vendors were still making a profit on resales last month, albeit a diminished one of a median $390,000. That's down from $406,000 in the March quarter, and a record high of $435,000 in the December 2021 quarter.
To put that in context, just two years ago, pre-pandemic in Q1 2020, the median resale gain was $233,632 – so vendors are still realising good returns thanks to market values soaring through 2021.
“While the figures have softened consistent with the wider market slowdown, the fall is only minor and it may be some time before we see more substantial declines in profit-making resales," Davidson says. "There’s no doubt that these figures are still strong, both in the frequency and size of the gains."
But now, the percentage of vendors making a loss has risen from 0.7 percent in the December quarter of 2021, to 0.9 percent in the March quarter, and 2 to 2.5 percent in the April-June quarter, to date.
Vendors forced by circumstance to sell within two years of buying their property are vulnerable. For those who have owned their house longer, they will still make a profit.
"Somebody who’s owned their property for 7-10 years before selling will inevitably make a gross profit, even if market values have fallen a bit from their recent cyclical peak," Davidson says.
Auckland and Wellington saw the biggest falls in the portion of properties resold for a gross profit. Christchurch and Dunedin remained flat.
And in Hamilton and Tauranga profit-making resales actually increased - every sale delivered a gross profit for the vendor.
Davidson emphasises that for many owner-occupiers, the gains are not a cash windfall, as they will typically just be ploughed back into their next property – potentially alongside a larger mortgage too.
“Unless they’re downsizing or moving to a cheaper location, these resale gains are not typically cash windfalls and in most cases, any profit made from a resale will need to be injected straight back into a new property, with ‘trade ups’ actually likely to involve higher debt levels in many cases, too.”
