Despite house prices finding their footing over the first quarter of the year, housing profitability continued to moderate over three months to March 2023.
According to CoreLogic’s Pain and Gain report, the share of dwellings that made a nominal gain from resale decline for the third consecutive quarter to 92.3% — this was done from the high of 94.2% recorded over the three months to May 2022.
The decline in profit-making sales had broadly coincided with the national housing market downturn, which likely moved through a trough in February 2023.
CoreLogic head of research Eliza Owen said profitability has deteriorated at a faster pace in the first quarter of 2023 than in the previous quarter despite the rate of decline in home values easing.
“As you would expect, changes in the portion of profit-making sales tends to move together with the capital growth trend. So, it’s unusual to see a sharper deterioration in profits through the March quarter, when prices were starting to stabilise,” she said.
Ms Owen said this could be due to the increase in short-term selling.
Over the quarter, a significant share of resales had been owned for less than two years — those that sold of a nominal gain increased to 8.4% from 6.6% last year while those that sold at a loss increased from 3.4% to 12.4%.
“Such short selling times that involve sellers incurring a loss may be considered unusual, because hold periods typically increase during housing value downturns, as sellers try to avoid making a loss,” she said.
For Ms Owen, what this could mean is that some sellers are choosing to incur a loss from resale in order to avoid particularly high mortgage repayments in the current rate-hiking environment.
Meanwhile, the unit segment witnessed a more rapid decline in profitability over the quarter compared to houses, contributing to a record gap in the share of profit-making sales between the two.
“Given there is generally a higher concentration of investment ownership in the unit sector, the increase in servicing investment mortgages may be a factor contributing to the greater concentration of loss in unit resales,” Ms Owen said.
These developing trends make it uncertain to provide an outlook for the profitability of housing over the next few quarters.
“There may be some motivated selling reflected in the next few quarters where property owners willingly sell at a loss to avoid rising mortgage interest rates,” she said.
“The combined factors of a recent sharp downturn in home values, and rising mortgage rates, may be inducing a higher incidence of loss across some parts of the country. Resource based markets, and large investment markets across Sydney and Melbourne, seem to be the main locations of this increased portion of loss-making sales.”
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