A recently released report by CoreLogic NZ Pain & Gain highlights a concerning trend in New Zealand's property market. Property resales for a profit have dropped to 93.1%, marking the lowest level since 2015. This decline is attributed to rising interest rates and subsequent property value decreases. Auckland is notably impacted, with 11% of Q2 property resales incurring losses. Despite property value stabilization, further resales with losses are anticipated. However, the report suggests that unlike past cycles, a full return to financial distress is unlikely due to a robust labour market and limited mortgage repayment issues.
The property market in New Zealand is experiencing significant shifts as falling property prices are causing a rise in the number of homes being resold at a loss. The CoreLogic NZ Pain & Gain report reveals that the proportion of homes being resold for a profit dropped to 93.1%, the lowest level since 2015. Auckland was particularly affected, with 11% of property resales in the second quarter ending up in losses.
The decline in profitability is attributed to sharp increases in interest rates and subsequent decreases in property values. Recent buyers, especially those who acquired properties in mid-2021 during a strong market, are now facing financial losses due to the changing conditions.
Interestingly, while property values are stabilizing, there is an anticipation of more resales leading to losses in the coming quarters. However, the report suggests that unlike previous cycles, a return to peak levels of financial difficulty is unlikely in the near term, as the labour market remains robust and mortgage repayment issues are not widespread.
The decline in property prices throughout New Zealand has led to a decrease in the number of homes being sold for a profit, reaching the lowest point since 2015. As indicated by the CoreLogic NZ Pain & Gain report, the percentage of properties sold for a higher price than their original purchase price dropped to 93.1% in the current quarter, down from 94.1% in the first three months of this year. This is the lowest figure observed since 2015, significantly lower than the peak of 99.3% recorded during the property boom in 2021.
Among the main centres, Auckland experienced the most significant challenges, with 11% of property resales in the second quarter resulting in a price below the original purchase cost . In Hamilton, the percentage of resales resulting in a loss increased to 10.7%, up from the previous 7.6%. In Dunedin, the proportion of gross loss resales was 5.9%, while in Christchurch, it was 4.9%. The overall level of profits has also decreased, with the median profit now at $290,000, a significant drop from the peak of $440,000 seen in 2021.
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