89.8% of Australian homes sold during the second quarter of 2018 enjoyed a re-sale gross profit, with total re-sale gains of $15.683 billion, but the share of re-sales at a profit was the lowest since October 2013. Over the June 2018 quarter, 10.2% of residential properties resold at a price lower than the previous purchase price, with total realised gross resale losses of $469.4 million.
The latest CoreLogic Pain & Gain Report, an analysis of homes resold over the June quarter compares the most recent sale price to the home’s previous sale price, determining whether the property resold at a gross profit or gross loss. It provides a quarterly proxy for the performance of the housing market and highlights the magnitude of profit or loss the typical seller of a home makes in those regions analysed.
Top-line report findings are:
The 89.8% of properties resold at a profit over the June quarter was down from 90.1% at the end of the previous quarter and down from 91.1% over the second quarter of 2017.
Loss-making resales increased over the June 2018 quarter compared to the previous March 2018 quarter in all capital cities. Comparing year on year, Hobart and Canberra were the only two capital cities in which the share of resales at a loss was lower.
The majority of Australia’s $15.683 billion in re-sale profit was generated by Sydney (32.0%) and Melbourne (27.4%), reflecting both the higher housing cost and strong property value growth in each city over recent years. By comparison, these two cities accounted for just 11.2% and 7.9% of the total nationwide re-sale losses over the quarter.
Houses are more likely to sell at a gross profit than units, a trend evident across the combined capital city and combined regional markets. 91.5% of houses and 85.2% of units recorded a gross profit resale, but both houses and units recorded a fall in profit-making re-sales over the quarter.
Investors continue to be more likely to resell their properties at a loss than owner-occupiers are. Over the second quarter of 2018, 9.8% of owner occupied properties sold at a loss compared to 10.1% for investor owned properties.
Over the June 2018 quarter, houses resold at a loss had typically been owned for 6.6 years, while those resold at a profit had been owned for 9.2 years. Units resold for a loss had typically been owned for 6.9 years while those resold for a profit had been owned for 7.8 years.
Properties being resold at a loss in the major mining regions generally remains at heightened levels, with six regions linked to the resources sector recording at least 40% of all re-sales at a loss over the quarter, but the proportion of resales at a loss has reduced from their peak, most of which occurred recently.
CoreLogic head of research Tim Lawless said, “Houses consistently record a higher proportion of resales at a profit than units. This may be attributed to the underlying land value of detached houses, which is a significant part of the overall value. But it’s also because unit markets can be more prone to oversupply than house markets.”
He also adds, “Capital city properties being resold remain more likely to sell for a profit than those in regional markets but over the past three months the gap has narrowed, due to a decline in resales at a loss in regional markets and an increase across the combined capital cities. Over the June 2018 quarter, 89.8% of capital city properties resold for a profit, down from 91.3% the previous quarter as well as being lower than the 92.7% a year earlier. In fact, the share of profit-making resales over the March 2018 quarter was the lowest since March 2013.”
Houses Vs Units:
There are many regions where units are dominant for resales. Some of these regions have recorded a relatively high proportion of loss while others are experiencing minimal loss making unit sales.
Sydney’s City and Inner South saw units comprise 71.3% of all resales over the second quarter of 2018 and 3.1% of these resales were at a loss, up from a lower 1.8% of resales a year earlier.
In capital cities, the proportion of houses reselling at a gross profit was lower over the quarter in all capital cities except for Canberra. For capital city units, the share of resales at a profit was lower over the quarter in all cities except Brisbane.
For the regional housing markets, the proportion of houses reselling for a profit increased over the quarter in Regional NSW, Regional Vic, Regional Tas and Regional NT. Profit-making resales on units increased over the quarter in Regional Vic and Regional Tas.
In terms of how likely units would resell at a loss compared to houses: for Melbourne’s units it was 9 times more likely, Brisbane’s units were 7 times as likely and Canberra’s units were 12 times.
Mr Lawless said, “13 capital city SA4 regions recorded double-digit proportions of units reselling at a loss over the June 2018 quarter. Importantly, a number of these regions are seeing historically high levels of new unit construction.
“Once these regions see new stock additions completed it could contribute to further weakness in resales of established housing stock. This will be an important trend to monitor over the coming quarters particularly in those regions where losses on resales of units are already heightened relative to 12 months ago.”
Investor Vs owner-occupier:
Investors continue to be more likely to resell their properties at a loss than owner-occupiers are.
Over the second quarter of 2018, 9.8% of owner occupied properties sold at a loss compared to 10.1% for investor owned properties. Sydney, Regional NSW and Hobart were the only major regions of the country in which a higher proportion of investors resold their property at a loss than owner-occupiers.
Throughout combined capital cities the gap in profit making-resales between owner-occupiers and investors was not that big, but individual city results varied much more: Melbourne investors were 3 times as likely to resell a property at a loss compared to owner-occupiers and in Canberra, they were 3.4 times as likely to sell for a loss.
Regional investors were slightly more likely to resell a property for a loss (11.9%) than owner-occupiers (11.7%) were. In each region, owner-occupiers were more likely than investors to resell for a profit were, but the performance gap between the two vendor types in the regions was nowhere near as big as that recorded in some capital city markets.
In a falling market, Mr Lawless said, “Owner occupiers may be more prepared to sell at a loss if they are purchasing their next home at an equivalent (or greater) discount. Investors have taxation rules to consider, and could be more prepared to incur a loss because (unlike owner-occupiers) they can offset those losses against future capital gains.
“If home values fall, investors (who have until recently been increasingly active in the housing market) may be more inclined to sell at a loss and offset those losses, which could result in increased supply at a time when housing demand fall is falling due to declining values.”
Regional areas:
- Most of the regional market’s strength is being driven by areas close to capital cities such as Sydney, Melbourne and Brisbane, as well as some coastal markets.
- There are firming signs that housing market conditions may be improving for major mining regions: sales volumes have bottomed in many of these regions and if anything lifted marginally.
- For major coastal regional markets, half saw their share of resales at a loss increase over the quarter.