Rising rates take their toll
Profitability has taken a hit from rising interest rates and falling home values as profit-making sales slowed over the September 2022 quarter.
According to CoreLogic’s latest Pain & Gain report, 93.3% of the 83,000 resales that occurred during the September quarter made a nominal gain, compared to the recent 94.2% peak seen in the three months to May. This equalled a combined resale profit of $26 billion, down from the revised $30.4 billion profit in the June quarter. At the same time, the combined value of loss-making sales increased 3.2% to $308 million.
“A rise in interest rates creates a double whammy for homeowners, in that the cost of debt becomes harder to service, and the underlying asset value against which the debt is held declines,” said Eliza Owen, CoreLogic’s head of residential research in Australia.
Profitability fell fastest across the combined capitals, Owen noted, with loss-making sales occurring more in areas that had seen less growth in value over a long period of time like resource-based and high-density investment markets.
“A key question surrounding CoreLogic resales data will be whether more recent buyers are selling at a loss in the current climate,” Owen said. “This would indicate a greater level of risk in the housing market, as more ‘distressed’ or ‘motivated’ sales would create a rise in listings volumes and put further downward pressure on prices.”
Loss-making sales are on the rise, but recent buyers aren’t being forced to sell
The CoreLogic report found that loss-making resales rose in 10 out of 15 markets across Australia’s greater capital cities and regional areas. Despite this, Owen said the analysis had not shown signs of an increase in distressed sales.
Perth, for example, accounted for 21% of the quarter’s loss-making resales. Still, the report found that these sales had a median hold period of 8.8, indicating that vendors were voluntarily choosing to sell at a loss and not due to distress from a recent purchase.
“While it’s true the recent decline in home values increases the chances of vendors selling at a loss, even properties held for less than two years had a median resale gain of $121,000 in the quarter,” Owen said, adding that the volume of loss-making resale “actually declined” during the same April to September period when home values plunged -4.8%.
“This is likely due to fewer sales and listings amid the housing market downturn, where overall resales on the whole fell -17.8% in the three months to September, compared with the three months to April 2022,” Owen said.
