Short-term home sales earning more losses

CoreLogic’s latest Pain & Gain Report for the March quarter found the number of dwelling resales occurring within two years of ownership had jumped alongside the number of loss-making sales.

Of the approximate 76,000 resales analysed in the report, the number of dwellings that made a nominal gain when resold fell for the third quarter in a row to 92.3 per cent, after reaching a high of 94.2 per cent in the three months to May 2022.

The number of loss-making sales also rose by 4.6 per cent in the March quarter, while the number of resales declined by 6.5 per cent when compared to the December quarter.

Eliza Owen, Head of Research at CoreLogic and report author, said the data actually showed a reversal in what might be considered typical behaviour for the period, with the portions of resales with a hold period of less than two years that made both gains and losses have surged when compared to the March 2022 quarter.

Dwellings that resold for a nominal gain within two years of purchase rose from 6.6 per cent to 8.4 per cent and those that resold for a loss rose from 3.4 per cent to 12.4 per cent for the same period this year.

“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.

“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.

“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.”

In the last three months, the level of profitability also plummeted at a faster rate than the previous quarter despite the easing of the home value decline.

Out of the capital cities, Hobart saw the highest rate of profit-making resales (99 per cent), followed by Canberra and Adelaide (both 98.1 per cent). Darwin recorded the highest rate of loss-making resales (29.5 per cent), followed by Perth (13.8 per cent), Sydney – at it’s highest point since the three months to August 2009 (10.7 per cent) and Melbourne (10.2 per cent).

The median hold period for resales across Australia also saw a decrease of one year to 8.9 years in the March quarter when compared to the previous quarter.

“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.”