National review | CoreLogic Pain and Gain report

The most recent edition of Corelogic’s Pain and Gain report analyses approximately 52,000 re-sale events over the June 2020 quarter to see who’s made money on their property sale and who has not.

The significant economic shock brought about by COVID-19 was likely to reduce profitability of residential real estate in the three months to June.

However, the decline in profitability is marginal at the macro-level, reflecting the cycles of growth over previous years.

Buy PropertyThe portion of loss making resales nationally rose to 12.8% in the 3 months to June.

This is 50 basis points higher than the March 2020 result.

Importantly, the June quarter saw a significant reduction in resale observations.

The June quarter saw 28.2% decline in re-sale observations in the June quarter, including 24.7% fewer loss making sales.

In other words, while the concentration of loss was higher, the actual event of a loss making sale was lower in the June quarter.

The volume of loss making sales up to June 30 2020 is shown below.

While the volume of sales has dropped significantly, the portion of loss making sales of total sales was slightly elevated.

Cl1

Portion of sales that were loss-making in 2020 based on 7 day count, Australia

Cl2

Nationally, gross profits for the June quarter totalled $16.9 billion, down from the $19.8 billion observed in the previous quarter.

The total loss incurred was also less in the June quarter, down from $908.6 million, to $775 million.

The increase in the portion of loss making sales in the June quarter coincides with a 0.8% decline in national property market values.

Values then fell a further 1.0% through to August, bringing the cumulative decline in property values to 1.8% since the end of March.

The reduction in the volume of loss making sales reflects a reluctance to sell when economic conditions are weak.

This reluctance may have been facilitated by mortgage repayment deferral policies through the pandemic, where those who are currently unable to service their mortgage may not have had to sell through the June quarter.

However, since June, there have been instances of lenders signalling that distressed borrowers, particularly investors, should look to sell before the end of repayment deferrals.

This could see an increase in loss making sales over the following two quarters, particularly in more high-risk, investor- concentrated markets.

It is also worth noting that while the increase in loss making sales may not have been as dramatic as anticipated, the portion of loss making sales is relatively high historically.

Loss making sales are at the highest level since August 2019, where the national housing market was just recovering from one of the longest and largest downturns on record.

Furthermore, the 12.8% of loss making sales is well above the 5-year average of 9.8%.

Loss making sales in the capital city markets saw a sharper rise than across regional areas over the June quarter.

The portion of loss making sales across the capital cities increased 90 basis points to 13.3%, compared with a 20 basis point increase across the capital cities to 12.1%.

Sell And Buy PropertyThe incidence of homes re-sold at a loss has been higher across capital cities than the regional markets since December 2019.

The gap between regional and capital city loss making sale rates has widened over the June quarter.

This is shown in the chart below, which displays the back series of loss making sales across the capital cities versus regional Australia.

This further supports the narrative that capital city markets have seen more downside impact as a result of COVID-19 than regional Australia.

In the June quarter, the value of the combined capital cities market fell 1.1%, while regional Australian dwelling values increased 0.3%.

While a narrative emerged of regional markets presenting more desirability than capital cities amid the pandemic, there are other elements to consider.

These include a cyclical lag usually present in regional areas, suggesting that the regionals are expected to see a decline that is later, and milder than what has been observed in the capital cities.

As a result, there may be greater convergence between loss making sales in capital city and regional markets in the coming quarters.

Cl3

A snapshot of the portion of loss making sales over the past two quarters is presented for the capital city markets below.

Six of the eight capital city markets saw an increase in the portion of loss making sales over the June quarter.

As with previous quarters, Darwin and Perth continued to show the highest proportion of loss making sales.

DarwinThis is consistent with sustained value declines, where the value of the Perth dwelling market is -22.2% below its record high in June 2014, and the Darwin market is 30.7% below its record high in May of the same year.

When looking at the change in loss making sale proportions, the biggest increase was across the ACT market.

The loss making sale proportion increased 1.9 percentage points in the June quarter.

This is despite the relative resilience of the ACT market through the COVID-19 pandemic, where values rose 0.7% in the June quarter.

Summary of loss making sales by capital city

The reason for the increase in loss making sales was that while the entire dwelling market saw increased value in the period, unit values declined 0.1%.

The portion of loss making unit sales increased 4.8 percentage points in the quarter, to 25.8%.

This signals the weakest level of profitability in the Canberra unit market since January 2017.

The second highest increase in the portion of loss making sales was in Darwin (up 1.6 percentage points), followed by Sydney (up 1.4 percentage points).

Adelaide was the only market to see a decline in the portion of loss making sales in the quarter, down 70 basis points, while Perth profitability was more or less steady in the quarter.

Portion of loss making sales – June 2020 quarter Portion of loss making sales – March 2020 quarter  

Change (percentage point)

Sydney 8.8% 7.5% 1.4%
Melbourne 6.9% 6.6% 0.3%
Brisbane 14.3% 13.1% 1.2%
Adelaide 9.2% 9.9% -0.7%
Perth 36.2% 36.3% 0.0%
Hobart 3.2% 2.5% 0.8%
Darwin 52.1% 50.5% 1.6%
ACT 12.8% 11.0% 1.9%
icon-podcast-large

Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Tim Lawless

About

Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au


'National review | CoreLogic Pain and Gain report' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*


Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts