The profitability of Australian dwellings declined further in the three months to March as a greater share of resales occurred within just two years of ownership, despite the rising incidence of losses, according to a CoreLogic’s analysis of approximately 76,000 property resales in the quarter.
CoreLogic’s latest Pain & Gain Report showed that the national median nominal gain for sellers was $276,500 for the March quarter, while the portion of dwellings that made a nominal gain from resale fell for the third consecutive quarter to 92.3%, down from a recent high of 94.2% in the same period last year.
Gains from residential resales in Australia, however, were still substantial overall and the rate of loss-making sales was relatively contained at a national level, said Eliza Owen (pictured above), CoreLogic head of research and report author.
Owen noted that the decline in profit-making sales had broadly coincided with the national housing market downturn, which likely moved through a trough in February.
CoreLogic data also showed that the number of loss-making sales rose 4.6% over the period while the number of resales dropped -6.5% compared to the December quarter.
Over the past few months, the level of profitability has deteriorated faster than in the previous quarter, despite an easing in the rate of decline in home values.
“As you would expect, changes in the portion of profit-making sales tends to move together with the capital growth trend,” Owen 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.”
Looking at hold periods, a mounting number of March quarter resales had been owned for less than two years. The share of loss-making resales with a hold period of less than two years that sold for a nominal gain rose from 6.6% in Q1 2022 to 8.4% for the same quarter this year, while loss-making resales for the same hold period jumped to 12.4% from 3.4% in March last year.
Those that sold for a nominal gain rose from 6.6% in Q1 2022 to 8.4% for the same quarter this year, while the share 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.
“Such short selling times that involve sellers incurring a loss may be considered unusual, because hold periods typically increased 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 fall in the rate of profit-making sales, the capitals were a mixed bag of results, with buyers cashing in on gains in smaller capital cities. Of the capital city markets, Hobart had the highest rate of profit-making sales, where 99% of resales made a nominal gain. This was followed by Canberra and Adelaide, with a rate of 98.1%.
The Brisbane housing market saw a slight rise in the rate of profit-making sales, to 95.7% in the quarter. In contrast, Darwin (29.5%), Perth (13.8%), Sydney (10.7%), and Melbourne (10.2%) saw the incidence of loss-making sales rise to relatively high levels.
Compared to Q4 2022, the rate of loss-making sales nationally for houses edged up to 3.8% in the quarter for houses and jumped to 15.4% from 13.8% for units.
Over the past year, profitability has more rapidly deteriorated across the unit sector relative to houses, contributing to a record gap in the share of profit-making sales across houses and units as of March, CoreLogic reported.
“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.
The Pain & Gain Report said the outlook for profitability in residential real estate was uncertain despite the high number of sellers making a nominal gain, and home values nationally rose 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,” Owen 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.”
Download a copy of the Pain & Gain Report from the CoreLogic website.
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