Short-Term Selling Rises as Property Profits Fall

More home resales within just two years of ownership has pushed the profitability of Australian homes down futher.

CoreLogic’s latest Pain & Gain Report shows the portion of homes that made a nominal gain from resale declined for the third consecutive quarter to 92.3 per cent from a recent high of 94.2 per cent in the three months to May, 2022. 

However, CoreLogic head of research and report author Eliza Owen said the gains from residential resales in Australia remained substantial overall and that the rate of loss-making sales were also relatively contained at a national level.

She said the decline in profit-making sales had broadly coincided with the national housing market downturn, which likely moved through a trough in February, 2023.

The March quarter report analysed approximately 76,000 resales, with the number of loss-making sales increasing 4.6 per cent over the period. The number of resales declined 6.5 per cent  compared to the December quarter. 

Owen said that in the past few months, the level of profitability has deteriorated at a faster pace than in the previous quarter, despite the rate of decline in home values easing. 

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

“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.”

Owen said looking at hold periods, an increasing number of March quarter resales had been owned for less than two years.

Change in home values

▲ Source: CoreLogic

Those that sold for a nominal gain increased to 8.4 per cent from 6.6 per cent  in the first quarter of 2022, while the portion of loss-making resales with a hold period of less than two years jumped from 3.4 per cent in March 2022 to 12.4 per cent for the same quarter this year. 

“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,” Owen said.

“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.”  

Despite a drop in the rate of profit-making sales, results were mixed across the capitals, with buyers cashing in on gains in smaller capital cities.

Of the capital city markets, the rate of profit-making sales was highest in Hobart, where 99.0 per cent of resales made a nominal gain, followed by a rate of  98.1 per cent across Canberra and Adelaide. 

The Brisbane housing market had a slight increase in the rate of profit-making sales, to 95.7 per cent in the quarter. 

At the other end of the spectrum, Darwin, Perth, Sydney and Melbourne had increases in the rate of loss-making sales to relatively high levels.

▲ Hobart topped the profit-making resales in the state capitals.
 

In Sydney, the incidence of loss-making sales reached 10.7 per cent in the March quarter, its highest level since the three months to August, 2009. 

For houses, the rate of loss-making sales nationally increased slightly to 3.8 per cent in the quarter, but the share of loss-making unit resales jumped to 15.4 per cent from 13.8 per cent in the last quarter of 2022. 

Owen said the past year had a more rapid deterioration in profitability across the unit sector relative to houses, and that this had contributed to a record gap in the share of profit-making sales across houses and units as of March 2023. 

“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,” she said.

Owen said there was uncertainty around the outlook for profitability in residential real estate despite the portion of sellers making a nominal gain remained high, and home values nationally increased in the three months to May.

“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,” she said.

“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.”