Loss-making sales may indicate more mortgage stress: CoreLogic

CoreLogic observed around 86,000 resales through the third quarter of 2023. Of those resales, 93.5 per cent recorded a nominal gain, and an average gross profit of $298,000, up from 2Q23’s revised 92.6 per cent of profitable sales at a median gross gain of $290,000.

In total, nominal profits from 3Q23 was estimated to be $27.4 billion, around $6 billion higher than a low of $21.6 billion in the three months to February 2023, coinciding with the trough in national home values.

On the increasing loss-making sales, CoreLogic head of research Eliza Owen said the increase was happening in the middle of rapidly rising interest costs and “may be a reflection of higher mortgage stress”.

“While the portion of short-term reselling dipped marginally quarter on quarter, resales with a hold period of three years or less hit a decade high in the year to September,” Ms Owen said.

“Another emerging trend in resale analysis is the greater share of loss-making that occurred within a relatively short hold period, as opposed to properties commonly making a loss after being purchased in mining regions around a decade ago.”

Properties held for three or less years accounted for one in five of loss-making sales in 3Q23, spread out across the country.

Melbourne – Inner recorded the highest portion at 4.1 per cent, followed by Melbourne – West (3.7 per cent), and Sydney’s Central Coast (3.6 per cent).

The median loss from these resales during 3Q23 was $30,000, with most sales being houses (64.8 per cent).

Ms Owen added that these short-term resales could remain elevated in the coming quarters as high rates impact the labour market.

“The RBA is forecasting unemployment to rise to 4.2 per cent by the end of next year, up from 3.9 per cent at the end of this year. This will test serviceability and may lead to an increase in motivated selling for mortgagors with high debt levels and low savings buffers,” she said.

“However, this is ultimately a small share of mortgagors, so the portion of short-term resales is not expected to grow substantially from where it is now.

“Ongoing increases in home values nationally should contain the rate of loss-making short-term resales, though capital growth conditions were looking weaker across Sydney and Melbourne to the end of this year.”

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