Loss making resales increase – Image: Unsplash
  • The soaring cost of borrowing could be pushing newly minted homeowners to sell
  • Loss-making resales increased, particularly for properties held for less than two years
  • Units reorded a higher concentration of loss compared to houses

The fast-paced rise in interest rates has left some recent buyers struggling, with many now electing to sell their homes according to a new report.

CoreLogic’s Pain & Gain Report found that the portion of homes that resold for a gain fell to 92.3%, with a sharp spike in the number of loss-making resales being owned for less than two years.

The portion of loss-making resales with a hold period of less than two years jumped from 3.4% in March 2022 to 12.4% for the same quarter this year.

CoreLogic Head of Research Eliza Owen said higher interest rates are likely starting to weigh on households who purchased when interest rates were at record low levels.

“Such short selling times that involve sellers incurring a loss may be considered unusual, because hold periods typically increase during housing value downturns, as sellers try to avoid making a loss,” said Owen.

“The implication may be that some sellers are choosing to incur a loss from resale in order to avoid particularly high mortgage repayments in the current rate-hiking environment.”

Eliza Owen, CoreLogic Head of Research

Driven by market weakness

Owen said the decline in profit-making sales is in line with the housing downturn, which likely moved through a trough in February 2023.

There were approximately 76,000 resales during the March quarter, with the number of loss-making sales increasing 4.6% over the period, while the number of resales declined 6.5% compared to the December quarter.

Owen said in the past few months, the level of profitability has deteriorated quickly, despite signs the overall market could be turning around.

“As you would expect, changes in the portion of profit-making sales tends to move together with the capital growth trend.

“So, it’s unusual to see a sharper deterioration in profits through the March quarter, when prices were starting to stabilise.

“This could be linked to more short-term selling.”

Portion of loss-making sales, capital cities versus regional – QoQ change

Portion of loss-making sales Mar 2023 Portion of loss-making sales Dec 2022 Change (percentage point)
Sydney 10.7% 8.8% 1.9%
Rest of NSW 2.7% 2.2% 0.5%
Melbourne 10.2% 8.0% 2.2%
Rest of Vic. 1.7% 1.2% 0.5%
Brisbane 4.3% 4.5% -0.2%
Rest of Qld 7.5% 7.8% -0.3%
Adelaide 1.9% 2.0% -0.1%
Rest of SA 5.8% 4.6% 1.3%
Perth 13.8% 13.1% 0.6%
Rest of WA 13.4% 15.6% -2.2%
Hobart 1.0% 2.3% -1.4%
Rest of Tas. 2.1% 1.9% 0.2%
Darwin 29.5% 25.3% 4.2%
Rest of NT 12.2% 8.0% 4.2%
ACT 1.9% 2.1% -0.2%

Source: CoreLogic.

Some smaller capitals holding up

According to the report, buyers in some of the smaller capital cities have faired better than those in Sydney and Melbourne.

The rate of profit-making sales was highest in Hobart, where 99% of resales ended in a gain, while 98.1% of buyers across Canberra and Adelaide also came out ahead.

The Brisbane market saw a slight increase in the rate of profit-making sales, to 95.7% over the quarter, while Darwin, Perth, Sydney and Melbourne saw increases in the rate of loss-making sales.

In Sydney, the portion of loss-making sales hit 10.7% in the March quarter, its highest level since August 2009.

While Darwin had the highest rate of loss-making sales at 29.5% followed by Perth with 13.8%.

Australians held their homes for 8.9 years, down from 9.9 years, while the total profit from resales in the March quarter is estimated to be $22.7 billion, down from $25.9 billion.

According to the report, the median nominal gain for resales was $276,500 across the country.

Units fairing worse

Owen said units were hit the hardest, with loss-making resales surging to 15.4% from 13.8% in the fourth quarter.

“Given there is generally a higher concentration of investment ownership in the unit sector, the increase in servicing investment mortgages may be a factor contributing to the greater concentration of loss in unit resales.”

Owen said there was still a level of uncertainty in the market, despite prices rebounding recently.

“There may be some motivated selling reflected in the next few quarters where property owners willingly sell at a loss to avoid rising mortgage interest rates.”

“The combined factors of a recent sharp downturn in home values, and rising mortgage rates, may be inducing a higher incidence of loss across some parts of the country.

“Resource based markets, and large investment markets across Sydney and Melbourne, seem to be the main locations of this increased portion of loss-making sales.”

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