Amid weakening house prices, homeowners were more likely to sell their property for a loss in the September quarter compared to three to six months earlier, new CoreLogic data showed.
According to CoreLogic’s Pain and Gain Report for the September quarter, some of those who lost money saw the median loss widen to $40,000, compared to $33,500 in the June quarter, with many of the loss-making sales concentrated in apartment-heavy neighbourhoods.
In Sydney, the Strathfield and Parramatta council areas saw at least one in five homes sold at a loss over the quarter, followed by Ryde (19.8%) and Botany Bay (18.5%), The Sydney Morning Herald reported.
In Melbourne, Melbourne city council area’s loss-making sales hit 39%, followed by Stonnington (27.8%), where new apartment towers have been constructed near public transport.
Brisbane city council posted 6.8% of sales at a loss, while Perth city council and Adelaide city council reported 53.4% and 19%, respectively.
The findings came after a recent Productivity Commission report that said housing affordability would improve if more homes were built.
Experts warned that loss-making sales would climb next year as mortgage rates rise, especially for recent borrowers, although the lift is expected to be moderate as many owners would be able to hang onto their homes, SMH reported.
According to research, 93.3% of residential sales in the September quarter made a paper profit – that was lower than the 93.9% posted in the June quarter and the recent high point of 94.2% in the May quarter.
Eliza Owen, CoreLogic head of Australian research, said declining housing values this year had upped the chance a property seller would not make a profit.
The data has not yet showed, however, a wave of owners who purchased at the peak and suddenly could not pay their mortgage, Owen said. Instead, it featured the locations that have had subdued growth for a longer period.
“This [downturn] has probably exacerbated some of the sore spots of loss-making sales,” Owen said. “High-density areas like inner Melbourne, inner Sydney, Parramatta, Canterbury-Bankstown, these are areas that have seen a lot of additional supply throughout the 2010s of unit stock, and that has led to subdued growth.”
In Parramatta, for example, loss-making sales had an average build date of 2011, while profitable sales had an average build date of 1995. This suggests that compared to lower-quality units in taller towers, older, larger, and lower-density apartments may be more valuable, Owen said.
Across Australia, units that sold at a loss in the quarter had the median hold period of 7.8 years, and 9.6 years for houses. Some 12.9% of unit sales, meanwhile, were inked at a loss, compared to 3.8% of house sales that made losses.
Owen said the risk of loss-making sales and distressed selling in 2023 was greater due to surging interest rates, but against a backdrop of more than nine in 10 sales making a profit this quarter, the CoreLogic researcher did not think the deterioration would be significant.
“Some people who face a sticker shock and may struggle with serviceability may be selling within a relatively short period of time,” she said.
Shane Oliver, AMP Capital chief economist, said more property owners who purchased at a time when interest rates were low could eventually face capital losses if they sell – especially if they become unemployed as the economy weakens.
“If interest rates go up, you can scrimp and save and get by,” Oliver said. “If one half of a couple loses his job then that can result in real problems, resulting in distressed sales at a time when they would become loss-making sales.”
He expected many investors would be able to withstand surging interest rates as they were often in a better financial position than first homeowners.
Diaswati Mardiasmo, PRD Real Estate chief economist, said the pick-up in loss-making sales next year would likely be moderate as many owners would rather hang on to their homes than sell and lose money, with banks likely to assist.
The exception, Mardiasmo said, would be the sellers who were motivated by family separation, death, or bankruptcy, although these sales would happen in any market.
“A bank doesn’t like losing their clients,” she told SMH. “What banks are trying to do is they’re either offering refinancing options or hardship options or any restructuring of your loan.”
Use the comment section below to tell us how you feel about the expected uptick of loss-making sales in 2023.
