The financial hurdle of trading up is being made easier by market falls. The logic is that someone selling a $1 million house to trade up to a $2m one has to find another $1m. If the market drops by 20% as many have in New Zealand, the original home drops to $800,000, but the house purchase is only $1.6m, meaning only an extra $800,000 is needed.
Another way to look at it is that it makes it easier to buy more bedrooms or move to a nicer suburb. Kelvin Davidson, chief economist at CoreLogic, says the gap in median values between three- and four-bedroom properties has dropped, especially in Auckland, Wellington and Dunedin. That makes the next step up the ladder easier, although the costs are still high.
“The downturn has helped close the gap a bit between four beds and three beds in these selected main markets,” Davidson says.
But although the gap has fallen in the past year, it’s still much wider than it was. Between 2003 and 2015, the step up from a three-bedroom home to a four-bedroom home in Auckland’s central suburbs more than doubled from $111,000 to $251,000. Post-2015, the step-up widened to a peak of $558,000 in 2022 before falling to $519,000 currently.
Start your property search
The smaller gap between selling and buying means a smaller mortgage, which costs less each month. Davidson says trading up still requires more equity, and in most cases debt. Mortgage interest rates are rising as well.
The latest data from the Real Estate Institute of New Zealand shows just how much of a drop the market has suffered in the last 12 months. The nationwide median sale price last month was, at $762,500, down 13.3% on January 2022. Auckland’s median sale price was down 21.7% over the same period, while the 12-month drop in Greater Wellington was 16.4%. Canterbury’s decline was less pronounced, with its median sale price down 1.5% year on year.
Read more:
- Sold, sold and sold! How property chain that dragged on for six months was solved in one hour
- Kerikeri resort home sells in the middle of cyclone chaos for $2.3m
- Developers and flippers battle it out for cheap, tired properties
Bayleys Remuera agent David Rainbow says a falling market is a good time to upgrade because of the reduced gap in price. “I've always indicated to people that when the market is dropping, it is always a good time to upgrade.
“To keep the figures simple, if somebody had a million dollar home and wanted to buy a $2m home, and if the market has dropped 20% , it would get you down to $1.6m,” says Rainbow. “If you take 20% off $1m we get down to $800,000. So it only costs you $800,000 to upgrade, not $1m if the percentage drop is exactly the same for both properties. The gap narrows.”
Rainbow warns buyers not to wait for the market to turn again. “When the market is going down, they say ‘well, I'll wait to see when that stops’. I've been in real estate, almost 39 years, and I've never been clever enough to accurately assess when the market stops going up or stops going down.
“If [a buyer] finds a house that they like, and they're prepared to either buy it without selling, or have sold and want to buy, it's a good time to do so now. Those who hesitate often lose.”
Wellington-based Ray White agent Ben Atwill, says some buyers are managing to trade up suburbs to ones that would have been unobtainable before the dip. “In theory you have more cash to spend,” says Atwill.
Buyers who are doing best out of the narrowing gap are those who sell first and have waited for the market to fall further, Atwill says. “It is a risk.”
However some buyers are finding their borrowing power is being reassessed by the banks, which means they might not be able to make the jump, even if the price difference is lower.
“The problem is if you’re dropping down to $800,000 [for the property being sold] are you still able to get up into that higher price point?” says Atwill.
“Some of our clients who have been pre-approved before this tumbling of the market at say $2.2m and then the approval rate [has dropped to] only $1.6m or $1.7m. Salaries or wages are slightly higher. But the serviceability is going to be tested at a higher level.”
It’s not so easy in Christchurch to trade up, says Bayleys agent Adam Heazlewoood, because prices haven’t fallen as much as they have in centres such as Wellington and Auckland.
“Prices have changed somewhere around six to 10%, depending on the property. Unless you're coming here with cash in hand, without having a property that you need to sell, the property that you're going to sell would have come back probably the same amount as the property that you're going to buy.
“The main thing is, whilst the jump might be a little bit less, the interest rates have risen. So it's probably just evened out to be honest.”
- Click here to find more properties for sale
