According to Cotality’s Pain & Gain Report for the September quarter, 94.8% of sellers across Australia achieved a record-high median profit of $315,000, up from $305,000 in the previous quarter.
Since then, dwelling values posted two strong rises in October and November, increasing capital gains for holders of Australian property.
The situation across the pond in New Zealand couldn’t be more different.
As illustrated below by Justin Fabo from Antipodean Macro, dwelling values have fallen sharply across all major markets.
Real inflation-adjusted home values across New Zealand have fallen back to their pre-pandemic level in 2019:
As a result, Cotality’s Pain & Gain report for New Zealand reported that the percentage of residential property sales made at a loss hit a 12-year high in the September quarter.
Cotality found that 12.2% of resales in the September quarter were sold for less than their previous purchase price, leaving their vendors with a median loss of $50,000.
The 12.2% of losses in the September quarter was up sharply from a peak of just 0.7% of loss-making resales at the height of the last property boom in the December quarter of 2021.
The situation in New Zealand serves as a warning to Australians currently leveraging up to purchase into what is the most expensive housing market in history.
First home buyers utilising Labor’s 5% deposit scheme need to be especially careful, since they are carrying very large mortgages with thin equity buffers, leaving them vulnerable to future house price corrections and negative equity.
Following 30 years of near uninterrupted growth, it is easy for Australians to be complacent and assume that home values will forever rise, supported by government policy.
However, Australia’s most similar economies—New Zealand and Canada—have experienced severe house price declines of more than 15% from their most recent peaks.
If Australia were to experience a similar type of correction, then thousands of first home buyers could be driven into negative equity, holding mortgages that exceed the value of their homes.
Please, be careful out there.
