Short-term loss-making resales on the rise | Pain and Gain Report

Key takeaways

CoreLogic analysed approximately 83,000 dwelling resales in the June 2023 quarter.

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, and the total nominal profit from resales were $25.8 billion.

The median losses from resale were $39,982, and the total nominal losses were $323 million.

Net profit from residential resales was $25.5 billion in the June quarter.

Among the capital cities Darwin had the highest volume of loss-making resales at 34.4%, followed by Perth at 12.3%.

Adelaide was the most profitable market of all the regions and capital cities, with just 1.8% of loss-making sales.

Owner occupiers continued to see a far greater rate of profitability than investors, at 96.3% compared to 88.3% of investors.

The median hold period of resales across Australia was 8.7 years through the June quarter, down from 8.9 years in the March quarter, and almost 10 years in the final quarter of 202

Who's winning and who's losing when they sell their properties?

Well..despite profitability in Australian home resales increasing for the first time in a year, the portion of loss-making short-term resales increased to 9.7%, from just 2.7% a year ago.

The CoreLogic Pain & Gain report for the June quarter shows the rate of profit-making sales increased for the first time in a year, to 92.8% of resales.

Profitability has broadly improved in the Australian housing market since the recovery trend in home values began in March this year.

Nationally, the total nominal profit from resales in the June quarter was $25.8 billion, up from $23.7 billion in the previous quarter, and a low of $21.5 billion in the three months to February this year.

However, there are more signs of a negative impact for recent buyers amid rising interest rates, and a housing market where values are yet to fully recover from the recent downswing.

Analysis of June quarter data showed another increase in the portion of short term resales, and a higher incidence of loss among these sales.

CoreLogic analysis indicates 8.5% of resales, or roughly 8,000 sales, were held for two years or less in the June quarter.

Of the properties sold within 2 years, 9.7% (almost one in 10) made a loss.

This was up from 9.4% in the previous quarter, and just 2.7% a year ago.

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. 66.0% of short term, loss-making resales were houses, and 63.3% were in capital cities. 72.1% of short-held, loss-making sales were by owner occupiers, but this is similar to the overall portion of resales in the June quarter, where 71% of total resales were by owner occupiers

Short-term resales rise in regional Australia

Another interesting dimension of resales analysis was short term hold periods of regional housing.

11% of regional resales in the quarter had only been held for up to two years, which is an unusual divergence from the decade average of 7.2%.

Outside of short term resales, the high level trends in profit-making sales broadly show an improvement.

Both houses and units saw an increase in the level of profit-making sales nationally, though unit sellers incurred a nominal loss from resale around 4 times as much as house sellers.

96.3% of owner occupier resales made a nominal gain compared to 88.3% of investors, making investors around three times more likely to incur a loss from resale.

Loss-making resales in regional Australia were steady in the quarter at 5.4%, belied by a mixed bag of market performance.

Many tree change and sea change destinations are seeing a deterioration in profitability, albeit off extraordinarily low levels of loss-making sales in recent years.

Houses and units

Outside of short-term resales, the high-level trends in profit-making sales broadly show an improvement.

Both houses and units saw an increase in the level of profit-making sales nationally, though unit sellers incurred a nominal loss from resale around four times larger than house sellers.

Only 3.5% of house sales made a nominal loss, down from 3.8% in the previous quarter.

The rate of loss-making house sales has remained fairly low and steady since the December quarter of 2021, remaining below 4.0% since this time.

The unit sector has seen a lot more weakness in profitability through the recent housing downturn, with 14.4% of unit resales making a nominal loss, or around 4.1 times more likely than house resales.

However, the rate of loss-making resales declined 90 basis points from the previous quarter, which has served to narrow the gap in the rate of loss-making sales between houses and units, which had hit a record high in the series last quarter.

Pain & Gain outlook

Profitability is expected to rise with home values.

The rate of profit-making sales tends to follow capital growth trends.

With home values continuing to rise through July and August, we estimate the level of profitability from resales will also move higher through the September quarter.

About Eliza Owen Eliza is head Of Residential Research Australia for Corelogic and a respected property market commentator. Eliza holds a first class honours degree in economics from the University of Sydney