While profitability is on the rise, the portion of loss-making resales is also increasing
While profitability in Australian home resales has increased for the first time in a year, the portion of loss-making short-term resales has also increased significantly, according to CoreLogic’s latest Pain & Gain report.
The report highlights the impact of various factors, such as pandemic-related lockdowns, low interest rates, and transitions from low fixed rates to high variable rates.
According to the report, the rate of profit-making sales increased to 92.8% of resales, representing a 40-basis-point increase from the previous quarter. This positive trend coincided with a 2.8% lift in home values nationwide.
However, a closer look at the performance of resales within a two-year period reveals a different story. The portion of homes sold within just two years increased by one percentage point to 8.5% over the past year. More significantly, the portion of these short-term resales where the seller incurred a loss increased from 2.7% a year ago to 9.7% in the June quarter, CoreLogic reported.
Eliza Owen (pictured above), head of research at CoreLogic and the author of the report, suggests that more sellers are willing to incur a loss at the moment, possibly due to high interest rates. The profile of loss-making sales is not too different from overall resales in the quarter.
“Of the loss-making resales held for up to two years, the median loss was $30,000, compared to a median profit of $75,000 for nominal gains within the same hold period,” Owen said. “Houses made up 66.0% of short-term, loss-making resales, and 63.3% were in capital cities.”
The report also reveals that owner-occupiers have incurred the most short-term nominal losses at 72.1%, as opposed to 27.9% by investors, a similar split to the portion of overall resales in the June quarter. Analysis of short-term resales suggests an unusually high portion of short-held regional properties were sold in the year to June 2023. Resales within two years made up 11.1% of overall regional resales, compared to a decade average of 7.2% per year.
Regional owners are selling up after a short stint of tree change or sea change, with concentrations of short-term resales observed in parts of regional Queensland, including Wide Bay (17.3%), the Gold Coast (15.2%), and the Darling Downs – Maranoa region (14.4%).
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Despite the relatively short hold period for a high portion of resales, the regions remained profitable for sellers. In the June quarter, 91.9% of homes held for up to two years made a nominal gain from resale, which is higher than the overall profitability of these resales nationally (90.3%).
The report also highlights trends in profit-making sales for houses and units. Both houses and units saw an increase in the level of profit-making sales nationally, although unit sellers incurred a nominal loss from resale around four times larger than house sellers, CoreLogic reported. Only 3.5% of house sales made a nominal loss, down from 3.8% in the previous quarter. In contrast, 14.4% of unit resales made a nominal loss, or around 4.1 times more likely than house resales. However, the rate of loss-making resales for units declined by 90 basis points from the previous quarter, narrowing the gap between houses and units.
Overall, the report suggests that profitability is expected to rise with home values. The rate of profit-making sales tends to follow capital growth trends, and with home values continuing to rise, it is estimated that the level of profitability from resales will also increase through the September quarter.
Key findings from the report include:
- The incidence of profit-making sales nationally increased to 92.8%, up from 92.4% in the previous quarter.
- The median gains from resale were $290,000 in the quarter, with a total nominal profit from resales of $25.8 billion.
- The median losses from resale were $39,982, with a total nominal loss of $323 million.
- Net profit from residential resales was $25.5 billion in the June quarter.
- Darwin had the highest volume of loss-making resales at 34.4%, followed by Perth at 12.3%.
- Adelaide was the most profitable market, with just 1.8% of loss-making sales.
- Owner-occupiers saw a far greater rate of profitability than investors, at 96.3% compared to 88.3%.
- The median hold period of resales across Australia was 8.7 years in the June quarter, down from 8.9 years in the March quarter.
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