In April 2017 some 9.8% of total home sales were below their previous purchase price. Breaking this down further, 7.5% of resales were more than 5% below, while 2.2% of sales were 0% to 5% below previous purchase prices.
This is according to FNB data which shows almost no noticeable increase in sellers losing more than they bought for.
“Over the last decade-and-a-half, August 2009 was the month where the highest estimated percentage of total properties were being resold at below their previous purchase price since a previous high early in 1999,” said John Loos, FNB’s household sector strategist, noting that 23.4% of all property sales registered in April 2009 sold for less than they were purchased for originally. “The country had just lived through a recession, and interest rates had peaked in mid-2008, and this was the lagged impact of those economic events on the housing market. It was a period of widespread financial stress among households, and many had previously bought homes at ‘astronomical highs’ around 2006/7 at the back end of the property bubble.”
What are the causes of price deflation when reselling?
- Genuine market price deflation can be the cause in weak economic or rising interest rate times, such as in 2008/9, or a specific area can fall from favour and even go into decay.
- A home may have originally been purchased at an “incorrectly” high price which was above the true market value at the time. Establishing the true market price is tough in a market where each home’s characteristics differs in some way from the next.
- Financial stress of the owner can lead to a deterioration in the property due to lack of maintenance and upkeep, or can cause a very hasty sale at below “market value”.