News & Research

Loss-making sales on the rise as property profitability deteriorates

Rate rises and falling home values are impacting seller profits, with vendors in capital cities, resource areas and high-density markets bearing the brunt of loss-making resales.

CoreLogic’s latest Pain & Gain Report, which analysed approximately 83,000 property resales that occurred in the September 2022 quarter, showed the proportion of profit-making sales fell to 93.3%.

CoreLogic Head of Research Eliza Owen notes profitability deteriorated most quickly across the combined capitals as Australian mortgage holders face a challenging period, as the RBA moves through its fastest rate tightening period on record.

“A rise in interest rates creates a double whammy for home owners, in that the cost of debt becomes harder to service, and the underlying asset value against which the debt is held declines,” Ms Owen said.

“A key question surrounding CoreLogic resales data will be whether more recent buyers are selling at a loss in the current climate. 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.”

The results show 93.3% of resales made a nominal gain. This is down from a recent high of 94.2% in the three months to May. The combined profit from resales over the quarter was $26.1 billion, down from a revised $30.4 billion in the June quarter (a decline of -14.1%). The combined value of loss-making sales rose 3.2%, to $308 million.

Ms Owen said higher volumes of loss-making sales had occurred in areas where there had been less growth in value over a long period of time, such as resource-based markets and high-density investment markets.

Perth accounted for around 21% of loss-making resales across Australia in the quarter. Of the loss-making sales in Perth, the median hold period was 8.8 years, suggesting a voluntary decision for the seller to incur a loss, rather than being in a distressed position from a recent purchase.

“Markets that have seen a sharper capital growth decline in recent months, such as the house segment, or popular lifestyle markets, still have a relatively low incidence of loss-making sales,” she said.

“This analysis has not shown any signs of a material increase in distressed sales. 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 $121,00 in the quarter.”

Ms Owen said the decline in profit-making sales broadly coincided with recent home value falls, noting Australian dwelling values fell -4.8% between a peak in April 2022 and the end of September, and have since fallen a further -2.2% to the end of November.

“While the value of homes in Australia declined sharply between April and September, the market saw fewer homes sold for a loss over the same period,” she said.

“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.”

Houses vs Units

Both houses and units saw a decline in the incidence of profit-making sales in the quarter. Despite national house values declining faster than units through the three months to September, units saw a faster deterioration in the incidence of profit-making sales.

Ms Owen said an increase in the rate of capital city units that were sold for a nominal loss contributed to the disparity between houses and units.

More than one quarter of loss-making unit resales occurred in Sydney and were highest in the council regions of Parramatta, Sydney and Canterbury-Bankstown.

The highest portion of loss-making unit resales was across a smaller pool of sales in Darwin, where 48.2% of unit resales made a nominal loss. At the other end of the spectrum, there were no loss-making unit sales recorded across Hobart through the September quarter.

“It is likely that Sydney unit resales have seen a high incidence of loss because of relatively subdued growth cycles through the COVID-19 period. Across Parramatta for example, the median purchase date of properties that resold for a loss was September 2015,” she said.

“Between September 2015 and September 2022, the Parramatta unit market as a whole has only increased 4.3% in value, with certain types of units likely to have under-performed during this period. Some of these may have been newer apartments and we can see from the data those units that sold for a loss in Parramatta had an average build date of 2011, compared to an average of 1995 for those sold for a profit.”

Regional markets

The rate of loss-making resales in regional Australia rose 40 basis points in the quarter to 5.7%, and around 50 basis points from a recent low of 5.2% in the three months to May.

The relatively lagged, and low creep in loss-making sales across regional Australia also coincides with slightly better capital growth performance in the regions. In the September quarter, value falls were -3.6% in the combined regional Australian dwelling market compared with -4.3% in the capital cities.

However, Ms Owen said the decline in regional home values accelerated in October and November, which may play out in a higher portion of regional loss-making sales in future quarters.

“While some regions have seen relatively steep declines in value over recent months, many of the regional lifestyle markets still retain a high level of value relative to the past few years,” she said.

“Using the example of Richmond-Tweed, values have fallen sharply from a peak in April, declining more substantially than Sydney. However values remain 24.3% higher than what they were at the onset of COVID-19 in March 2020 as they do in places such as the Gold Coast, where values remain 41.9% above March 2020 levels, despite a recent peak-to-trough decline of -7.4%.”

There were mixed results among resource-based markets, with a substantial shrinking in the rate of loss-making sales in some areas such as Mackay – Isaac – Whitsunday and an increase in other areas of Queensland.

“We expect to see a slight reversal in the strong capital gains made in mining markets over the past few years as rate rises start to chip away at capital growth performance. This is likely to see some elevation in the rate of loss-making sales in the coming months,” Ms Owen said.

Pain & Gain Outlook

The resales market is likely to be tested further in 2023, with the majority of outstanding fixed loan terms secured through the pandemic to expire by the end of next year.

Ms Owen said this could prompt more motivated selling in a high interest rate environment, even if property sellers have to endure a loss. However, strong labour markets will also underpin serviceability.

“With home values generally still above pre-pandemic levels, there is likely to be a ceiling on the rate of loss-making sales observed in the coming quarters. The fluctuation in the rate of loss-making sales is not expected to be as severe as the overall decline in property values. The rate of loss-making sales has not spiked as dramatically as values have fallen, because losses are only realised if a property owner chooses, or is forced, to sell,” she said.

“Selling activity has trended lower through the downswing, with the count of new advertised listings down -13.5% on the previous five-year average nationally through September. There has been little evidence to date of a rise in motivated selling amid falling home values.”

Key findings for Pain & Gain, September Quarter 2022

  • CoreLogic analysed approximately 83,000 dwelling resales in the September 2022 quarter
  • The incidence of profit-making sales nationally declined to 93.3%, down slightly on the results from the June 2022 quarter
  • Data on a rolling three-month basis shows profit-making resales actually hit a peak of 94.2% in the three months to May 2022
  • Across the greater capital city and rest of state regions, 10 out of 15 markets saw an increase in the rate of loss-making resales
  • Sydney had the largest spike in the rate of loss-making resales, jumping from 6.4% to 7.8% in between the June and September quarters
  • Perth had the highest volume of loss-making resales, accounting for almost 21% of the countries quarterly loss-making sales
  • Brisbane and Adelaide had the highest incidence of houses sold for a nominal gain at 99.3% and 99.2% respectively
  • The proportion of loss-making sales fell in Adelaide, Hobart, Regional SA and Regional WA
  • Nationally the median hold period for profit-making resales increased to 9.2 years.

Download the latest Pain & Gain report


Eliza Owen

Meet Eliza Owen

Head of Residential Research Australia

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Eliza Owen was appointed the Head of Research at CoreLogic Australia in 2020.

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