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Over one in 10 property sellers in the country’s two biggest capital cities incurred a loss on their property sale during the first quarter, and a growing number are planning to divest their asset within only two years of buying.
CoreLogic’s latest Pain & Gain Report showed the portion of properties that made a nominal gain from resale declined for the third consecutive quarter to 92.3 per cent.
The report analysed about 76,000 resales, with the number of loss-making sales increasing 4.6 per cent over the March quarter. Notably, the figures mark a significant decline from the recent peak of 94.2 per cent observed in the three months leading up to May 2022.
During the period, Melbourne’s loss-making property sales hit their highest level in almost 25 years, with data showing 10.2 per cent of vendors resold for a loss.
Sydneysiders also copped losses on 10.7 per cent of property deals – the highest rate since 2009.
Despite a decline in the rate of profit-making sales, results were mixed across the capitals, with buyers observed to be cashing in on gains in smaller capital cities.
Hobart saw the highest rate of profit-making sales during the period, as the Tasmanian capital saw 99 per cent of resales making a nominal gain. This was followed by a rate of 98.1 per cent recorded in Canberra and Adelaide.
Meanwhile, 13.8 per cent of Perth sellers made a loss – though this was below the decade average. In Queensland, Brisbane bucked the trend and had only 4.3 per cent of sales at a loss.
CoreLogic head of research for Australia Eliza Owen said that gains from residential resales in the country continued to be generally “substantial” and the rate of loss-making sales were “relatively contained at a national level”.
But she acknowledged the level of profitability had declined with the market downturn, and deteriorated at a faster pace in the first quarter – despite a stabilisation in prices.
The expert drew attention to a notable trend where a larger portion of resales is taking place within two years of ownership, despite the rising rate of losses, which Ms Owen noted be an early indication of borrowers, particularly investors, trying to get ahead of mortgage stress as interest rates rises continue to become a bigger burden on home owners’ pockets.
“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,” she said.
In the March quarter, data showed the number of resales that had been owned for less than two years and sold for a nominal gain increased from 8.4 per cent, up from 6.6 per cent in the corresponding quarter in 2022.
Additionally, 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,” Ms Owen commented.
A closer look showed the rate of loss-making sales in houses increased slightly to 3.8 per cent in the quarter nationally, but the share of loss-making unit resales surged to 15.4 per cent from 13.8 per cent in the December 2022 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,” Ms Owen said.
The portion of loss-making sales climbed to 21.9 per cent of apartments in Melbourne, and 17.5 per cent in Sydney, while only 2.4 and 2.3 per cent of houses in each, respectively, sold at a loss.
Ms 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.
She highlighted that a combination of recent steep declines in home values and increasing mortgage rates may be contributing to a higher occurrence of property losses in certain markets.
“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,” she stated.
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