New research shows the extent of the capital gains vendors made from selling their homes since Covid-19 hit New Zealand more than two years ago.
OneRoof’s data partner, Valocity, looked at the average resale profit for each year since 2012 and found a big jump in profits in 2020 and 2021.
Back in 2012 the average gain on a house sale was just $39,200, while in 2016, at the height of the last boom, sellers made an average profit of $162,000.
Last year the average gain was $275,300.
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Valocity head of valuations James Wilson said: "Homeowners in all regions received significantly higher gains if they sold in 2021, reflecting the strong market and record-high prices.”
He added: "We all knew that the market had been hot in the latter half of 2020 and throughout 2021 but to see the average profit sellers were making during that period was eyebrow-raising. It's a pretty big number."
Those big gains mean the slowdown currently visible in the market shouldn't be too much to bear for most homeowners, Wilson says.
"To put it into perspective, if that's the dollar amount people have made since Covid a small softening for most people who bought in the last couple of years won’t have too much of an impact - they'll probably be able to ride that through.
“Putting a dollar amount around the resale profit allows you to put some of the doom and gloom-type headlines into context.”
The research focused on properties that had been sold within five years of the seller's original purchase but it also looked at average hold periods nationwide and in each region. It found Wellingtonians held onto property longest and also received the largest gains.
Wilson says that's because Wellington house prices and value only really escalated in the last couple of years.
"When it wasn't growing as much it didn't have as much hype and you didn't have the same number of people reselling because the motivation of the gain wasn't there,” he says.
"What we saw post-Covid was a huge amount of growth and resale profits grew accordingly."
Wellington and other strong profit growth areas like Hawkes Bay also started from a lower value base. "But it doesn't discount the fact they've still come a long way dollar value and those gains are real," Wilson says.
Valocity head of valuations James Wilson: “Everyone's been using net equity to make a change." Photo / Fiona Goodall
The research pointed to tougher times ahead for some buyer groups. “Investors are likely to struggle in the year ahead and that they should not be surprised if the next few years do not bring the same levels of capital growth that they saw in the last two years.”
Some properties may even sell for a loss, but Wilson says the change in the market may not be as bad as some fear. New Zealand has never suffered a massive crash in property values; even after the Global Financial Crisis, when values weakened, the market managed to bounce back.
"Usually, most Kiwis will tighten the belt and cut other things to keep paying the mortgage and so that pressure to sell a home under duress doesn't usually affect most people,” Wilson says.
"That's also because our banking system and our banks will usually adopt a really supportive approach there so they will do all they can to work with the customer. Even if their mortgage still isn't affordable they will usually allow the customer to transact their property on their open market themselves and not force the sale."
But while the GFC was a liquidity crisis, the market slowdown this time around is against a backdrop of rising interest rates and escalating cost of living pressures so the softening may be around for longer.
Wilson says average holding times – that's the time between sales – is relatively short in New Zealand at around two to three years, which he says shows how Kiwi homeowners have been willing to leverage their position.
"You know, they've got some good equity growth, 'let's sell or upsize'. I think it's shown there have been a lot of people very active in the market and not just your investors. Everyone's been using net equity to make a change."
